Taking the time to consider the following basic, but frequently made, estate planning mistakes will save you time and money in the long run. Please call us if you would like help avoiding these or other estate planning errors.

1. No Will

Without a will, if you are married and have no children, the surviving spouse will take what’s left over, but without tax and creditor protection planning.

If you are married and have minor children, you probably want to provide for your spouse, trusting him or her to take care of your children while they are minors. If your children are adults, you may want to ensure they receive something on your death, even if you die before your spouse, or you may want to restrict what they receive even if you are the last spouse to die. Without a will, some assets likely will pass to your children in a way that doesn’t match your desires.

The only way to achieve your wishes is to put them in writing. A will allows you to leave property to whom you wish with few restrictions, except that you can’t condition a bequest on something that is contrary to public policy.

A will also allows you to defer and save federal estate taxes. The unified gift and estate tax credit allows each individual to give away during life or bequeath at death $625,000 free of gift and estate taxes (the exemption equivalent, which will increase gradually under the Taxpayer Relief Act of 1997 until it reaches $1 million in 2006).

Each individual can also give or bequeath to his or her U.S. citizen spouse unlimited amounts gift- and estate-tax free without dipping into the unified credit. With proper estate planning documents and allocation of assets, you can ensure that both of your exemption equivalents ($1.25 million total in 1998) pass to your heirs free of transfer tax. If you have your entire estate pass to your spouse outright, you unnecessarily will pay estate taxes on $625,000 (more as the exemption equivalent increases).

To make use of both spouses’ unified credits, we typically create a credit shelter trust funded with the exemption equivalent to benefit the surviving spouse. With proper drafting, the surviving spouse can be the trustee, yet trust assets will not be taxed in his or her estate.

Not making proper use of the exemption equivalent can also come from outdated wills. Wills in which each spouse leaves all to the other spouse may have been fine earlier in your life when you had few assets, but are not sufficient after you have accumulated a sizable amount of wealth.

An alternative to a will is a living trust, which offers certain advantages. Please call us if you would like to learn more about living trusts. We can help you determine whether a will or a living trust will better meet your needs.

2. Too Much Joint Tenancy Property

Your will operates only on property you own at death that does not pass automatically on death by virtue of how it is held or a beneficiary designation. Since joint tenancy property passes to the surviving joint tenant by operation of law, your will cannot direct who is to receive property held in joint tenancy or how such property is to be held. The property belongs to the surviving joint tenant, free from restrictions.

In addition, if the joint tenants are spouses, the property will receive a step-up in basis at the death of one spouse on only one-half of the property’s value rather than on the whole.

Joint tenancy property also cannot be used to fund a credit shelter trust because it automatically becomes the property of the survivor. Too often, too much joint tenancy property defeats an otherwise good estate plan. This is why we recommend that each spouse have assets at least equal to the exemption equivalent in his or her own name.

The same concern exists for life insurance. Consider using life insurance proceeds to fund the credit shelter trust. Remember, you are not depriving the surviving spouse of the use of the funds in that trust; you are simply avoiding the potential tax on those funds.

3. Not Keeping Track of Assets

Assets discovered after the close of probate require its reopening and may result in additional estate taxes plus interest and penalties. Probate is the process by which title to property is transferred to heirs when the property itself does not have an automatic means of transferring title (such as joint tenancy property, property held in trust and life insurance with a designated beneficiary). If your heirs, for example, discover some U.S. Savings Bonds years after the close of probate, the government may insist on reopening it to get the bonds transferred.

Maintain a list of your assets at all times. If you don’t want the list available to others during your life, leave it with your attorney or accountant, or in your safe deposit box. Also, keep the list current. It should contain the nature of the assets and their locations. Destroy outdated passbooks and lapsed insurance policies, or at least label them clearly as obsolete, so your heirs don’t waste time pursuing nonexistent assets.

4. Not Considering Liquidity

Even if you don’t own a business, your
estate should be treated as one. It will need liquidity to operate. First, your family will need income. Second, your estate will have expenses: estate and income taxes, debts, and professional fees and other administrative costs.

An estate generally requires a great deal of liquidity to be successful — that is, to carry out your wishes and the directions of the estate plan. Ensure enough liquidity to avoid the forced or untimely sale of estate assets.