Below are a few more examples of the pitfalls I have seen my clients experience over the last 15 years of practice due to an outdated estate plan. Keeping your Estate Plans up to date can save you and your loved ones time, energy and money.
Naming Estate or Trust as Beneficiary of IRA or Other Qualified Retirement Plan
Naming a Trust as beneficiary of a retirement plan could have unintended consequences. For example, a spouse loses the ability to rollover the benefit and other Trust beneficiaries may lose the tax deferment advantages of the retirement plan. Further, naming your estate as beneficiary will certainly cause a lump sum distribution and result in heavy tax burden to your beneficiaries.
A Trust as beneficiary can be a good option, but only if your Trust is specifically designed to prevent the loss of tax deferment. Many trusts do not account for this issue unless it is specifically addressed within the plan.
If going through a divorce, it is important to change your estate plan immediately. Otherwise, your soon to be ex-spouse may receive your estate if you die before your divorce is final. If you are divorced it is also important to change your plan to make clear who your intended beneficiaries are at your death. Further, if you have children and do not want your ex-spouse to manage their inheritance it is important to change your plan.
A primary reason to review an estate plan is to account for any change in tax laws. While federal estate tax law has changed in recent years and for most, is no longer a concern, an existing plan that considered the federal estate tax may have negative tax consequences. For example, an outdated plan may require that a marital trust and credit shelter trust be established at death when it is no longer needed under existing law to mitigate estate taxes. However, it may result in an increase in capital gains tax when assets are later sold as well as add expense for annual tax filings.
Many people think that a Will avoids the court supervised probate process of settling your estate upon your death. This is a misconception. In order for your assets to pass through your Will, a court supervised probate administration is required. If avoiding probate is important to you, a revocable living trust may be a better option.
If you want to review your existing estate plan please contact our office and schedule a time to meet with us. We look forward to hearing from you.