With the holidays, generosity blooms. Despite the commercial din, we take joy in giving gifts, and our hearts and minds become attuned to those we love. It is also a season for reflection on the past and the future and perhaps a good time to reflect on how your affairs will be settled upon your death. Without advance thought and preparation, you may unwittingly commit common estate planning errors that can lead to family feuds.
An estate plan is a bit of housekeeping that everyone should undertake & not just the wealthy.
A good friend of mine lost his mother about four years ago. She left behind a letter asking the elder brothers to distribute her assets among the five siblings. Though the family was close, the ensuing events divided them. First, the money created drawn out and difficult discussions as some felt they deserved more than others. At the same time, some of the siblings entered the deceased mother's home and took various sentimental items. An innocently purloined clock with no dollar value triggered accusations and family fireworks. In the end, a process that should have taken a few months stretched into a few years. Things were finally settled, but not without some lasting strain within this once-close family.
Who was to blame? Mother. She didn't declare her intentions. She put the elder brothers in an untenable position. She did not make a will. She made no statement of how her personal effects should be handled. She never discussed the issues with her children before her death. By not assuming responsibility for her affairs, she started a chain of events that would have horrified her: strife among her children.
Here are some steps you can take to prevent common, basic estate planning errors:
- Draw up a will, if you haven't already. If your will is more than five years old, see an attorney to have it updated.
- If you will have a taxable estate, engage in planning to increase the amount your heirs will receive. Your estate generally includes everything you own, including the fair market value of real estate, life insurance policies, collectibles, and investment assets.
At the federal level, in 2006, the first $2 million of your estate is exempt from estate tax. If you have a taxable estate, the top federal tax rate is 46%. At the state level, only the first $1 million is exempted in 2006. If your estate is taxable, the top state tax rate is 16%.
- Draft a Letter of Instruction to accompany your will. This memo will spell out the handling of your personal effects, funeral arrangements, professional advisors to call, and location of critical documents. These details are not included in the will.
- Have a meeting with your heirs to explain your intentions. The purpose is to avoid or minimize misunderstandings or ill feelings after your death.
- Create a critical records file at home. Place all important financial or legal documents in one place, such as a fireproof box, and tell your loved ones where the box is. This saves them the trouble of having to search shoeboxes and file drawers to find your accounts, debts, property, and lists of advisors.
- Check your beneficiaries on all retirement accounts and insurance policies. An out-of-date, forgotten beneficiary, such as an ex-spouse, is one of the leading causes of unintended consequences after a death. Your will does not correct this oversight & the beneficiary designation supersedes the will.
It may pay to see an estate attorney to map out a strategy, and put some of these steps into practice. Contact me for referrals to experienced specialists in Arlington.
The Holidays are a time for giving gifts and celebrating relationships with loved ones. Preparing your estate for an orderly transfer is also a gift to those you care about the most.
Advisor is a Certified Financial PlannerTM practitioner and is a registered representative with and offers securities through Linsco/Private Ledger (LPL), Member NASD/SIPC.