To ensure your estate is in the right hands, you must know what not to do. A lot of people don’t have a will and too many of them put off estate planning until it is too late. However, not having a will can lead to some issues.
Beneficiary designations and titles to assets are the most common sources of estate planning mistakes and issues to address. While estate planners know the common mistakes and consequences, a lot of people don’t. The following are some of the common mistakes people make when planning their estate:
Having Financial Accounts Held Jointly with an Adult Child
A jointly-held account usually creates issues. In the majority of states, this is subject to the claims of creditors of either co-owner. Your assets could be in someone’s hands if your adult child divorces, runs up big debts, and loses a lawsuit. Also, your adult child may use this joint account to fund their own lifestyle. A reputable estate planning attorney in McKinney, TX can walk you through other consequences.
Another issue with converting a financial account to joint ownership is that there could also be tax issues. The IRS considers half of this account as your gift to your child and the co-owner takes the same tax basis you had in the account’s assets.
Not Naming or Updating your Estate Plan
If you don’t name a beneficiary for an IRA or other retirement plan, the estate will be treated as the beneficiary. This eradicates the possibility of having a Stretch IRA in which tax deferral can be maximized. Also, the asset that normally would avoid probate should go through the probate process. Thus, It will be considered part of the estate and be distributed according to the terms of the will or state law.
Moreover, beneficiary designations must be kept up-to-date. You may want to review your decision after marriages, deaths, divorces, and other events.
Failing to Name an Appropriate Beneficiary
You should not name a minor as the direct beneficiary to your property or life insurance. Otherwise, they would only get full title and control of the property when they turn 18. Also, when choosing a beneficiary, you don’t want someone who has a history of financial mismanagement, gambling problems, or substance abuse. Make sure you don’t choose a beneficiary who might be divorced, is in a risky business, or subject to liability lawsuits.
