Costly Estate Planning minefields and how to avoid them
- In 1998, 61 percent of Americans 55 and older had a will or trust. In 2012, only about 54 percent did, says a recent study by Texas Tech University.
- A good estate plan can save your family money; it also protects you and them while you are alive. If you don’t have a plan and you become incapacitated, someone will have to go to court so they can make medical and financial decisions for you. The process not only is unpleasant but costly and makes your personal affairs a matter of public record.
- After a divorce or the death of one parent, the surviving parent often just adds a child’s name (or that of another relative or friend) to bank, brokerage accounts, property, and other assets as a way to ensure that they can take control if you need them to, and allow them to inherit the assets when you die and avoid probate. You may not be worried about your child or another person you trust misusing the funds, but this joint titling puts these assets at risk if the other person is involved in a lawsuit, bankruptcy, or divorce proceeding as well as effects future tax issues.
- One of the biggest misconceptions is that a will or trust is the final word, which is not entirely true. If you have a 401(k), an IRA, insurance policies, and other assets with named beneficiaries, as well as the payable-on-death and transfer-on-death account mentioned above, those funds will be distributed directly to the people named, even if your will or trust says otherwise.
- You could also set up a trust that pays a child’s funds out over time and provides how the trust funds can be used for, such as educational expenses, a new home, or a wedding.
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