ESTATE PLANNING

TEN COMMON MISTAKES REGARDING ESTATE PLANNING

A carefully designed estate plan will allow you to transfer property
to your family, friends, and charities with minimum shrinkage due to
estate tax and other costs.

There are a number of common estate planning errors that may result in more
money going to the IRS than is necessary and in disagreeable family
situations, which might have been avoided. It is essential to avoid these
mistakes. Only then can someone be reasonably assured that his or her loved
ones will be taken care of after death. 

Here's a list---with brief commentary---of the most common estate planning
errors:

1) SIMPLE (“I LOVE YOU”) WILL-OVER-UTILIZED MARITAL DEDUCTIION

Perception: Leaving everything to your spouse is, in concept, a trusting,
loving decision. (Hence the term, "I Love You" will). There is no federal
estate tax because of the unlimited marital deduction. Therefore, the cost of
this plan is minimal.

Problem: Leaving everything to your spouse denies you the use of certain tax
credits. The wasting of the unified credit, which shelters $675,000 of your
estate from tax, means you're eventually giving the IRS more than $250,000
extra. Thus, the IRS gets the money instead of your family.

2) ASSETS HELD BY ONE SPOUSE

Perception: While many couples own property jointly, only one spouse holds
most of the assets not held jointly. It doesn't matter that the property is
not split between husband and wife.

Problem: In analyzing the total estate tax burden on both a husband and a
wife, it will matter if only one party holds the bulk of the assets. If the
other spouse dies first, that spouse's unified credit will be wasted.

3) ALL PROPERTY OWNED JOINTLY WITH SPOUSE

If your property is jointly owned, your surviving spouse will
receive the property without the necessity of probate proceedings. No wills
are needed.

Problem: When the surviving spouse dies subsequently, the assets must pass
through probate. A will (either the one you draft or the state's will) is
needed for this distribution. If your surviving spouse still owns the
property at his or her death, it may be entirely included in the estate for
federal estate tax purposes. Simultaneous deaths may cause jointly owned
property to pass to persons other than those to whom you intended it to go.
Jointly held property limits the possibility of distributions to
beneficiaries other than the joint owner. Finally, once again, the unified
credit is being wasted.

4) LACK OF LIQUIDITY

Perception: My executor can pay all of my bills with assets from my estate.

Problem: Most bills, including the most significant one, the estate tax, must
be paid in cash. The IRS will collect the estate tax within nine months after
death. If the executor must convert assets (e.g. your business) to cash,
there can be a significant reduction in the estate being passed to your
family because of the reduced price that this asset will obtain on a forced
sale and because the funds go to the IRS and not to your family.

5) IMPROPER PLANNING FOR BUSINESS CONTINUATION

The business will take care of itself, or my partner will take
care of my family.

Problem: Failure to fix a value for your closely held, non?family business by
means of a "business will" (buy sell arrangement) can result in a substantial
increase of federal estate taxes due at your death and a decrease in the
amounts passing to your beneficiaries.

6) FAILURE TO CONSIDER THE IMPLICATIONS OF GENERATION SKIPPING TRANSFER

There's only one federal transfer tax system. I can beat the
system, in part, by making large transfers to my grandchildren. That will
avoid taxes that would have been due if I had transferred the property to my
kids and then they transferred the property to my grandchildren.

Problem: There's not one federal transfer tax system, but two. The second is
called the Generation Skipping Transfer Tax. Lack of awareness of the GSTT (a
55% tax on any generation skipping transfer) may dramatically reduce the
amount actually going to your grandchildren.

7) IMPROPERLY ARRANGED LIFE INSURANCE

It doesn't matter who owns my life insurance. The major benefit
is getting large amounts of cash to the family at the insured's death.

Problem: Insurance is one of the best sources of cash available at your
death. However, in large estates, it will be more efficient for a third
party, such as a trust, to own the insurance. That way, the death benefit is
not included in your taxable estate and the family gets all the money instead
of sharing it with the IRS.

8) FAILURE TO CONSIDER IRREVOCABLE TRUSTS PERCEPTION

Irrevocable trusts are bothersome and require the grantor to give
up control of the asset.

Problem: Lack of knowledge of the effectiveness of an irrevocable living
trust funded with life insurance and/or other assets can deprive you or your
estate of the opportunity to eliminate some or all estate and gift taxes on
the trust property. There are methods that may make such trusts flexible
enough to satisfy you.

9) HOLDING ON TO ALL OF YOUR PROPERTY UNTIL DEATH ALLOWS YOUR ESTATE TO USE THE MAXIMUM UNIFIED CREDIT

Problem: The "saving" of the unified credit until death should be weighed
against the earlier use of the unified credit as part of a lifetime gift
giving strategy aimed at removing appreciating assets from your estate and
thereby reducing federal estate tax consequences. Sometimes the credit can
be "leveraged" during your lifetime by using it to purchase life insurance
outside of your estate.

10) WILL ERRORS

Perception: Minor "mistakes" probably don't matter. They can always be fixed
or will be unimportant.

Problem: Unfortunately, mistakes in your will can't be fixed once you die.
This is really a one shot deal; you can't come back and put things right. For
instance, does your will indicate your proper domicile? Your choice of
domicile as opposed to the correct domicile may cause excessive state death
taxes. Does your will revoke all prior wills? Have you included a
simultaneous death clause? Are the provisions in your will referenced and
coordinated to your dispositive instruments such as your life insurance, your
irrevocable trust, and your buy sell agreement?

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The information given here is designed to be of a general nature. It is
given with the understanding that if legal, accounting, or other professional
advice is required, the services of a competent professional practitioner
should be sought.
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