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Financial Planning > Trusts and Estates > Estate Planning

10 ways to screw your clients' estate plans

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Estate planning can be a difficult subject, even without the philosophical considerations. According to wealth management specialist Jim McCarthy, in a rush to utilize sophisticated techniques, it’s easy to overlook some simple moves. He warns against 10 common mistakes in estate planning.

  1. Not funding your living trust. Too many people, McCarthy says, try to use a living trust in an estate plan, but fail to transfer the necessary property to it.
  2. Using too much JTWROS property. While titling assets under joint-tenancy-with-right-of-survivorship will avoid probate, according to McCarthy, your clients will still owe estate taxes. Another caveat is that those assets will go to the surviving joint tenant, regardless of what the will says.
  3. Leaving too many assets to a spouse. This strategy will avoid estate taxes at first, but fails to take advantage of the first-to-die spouse’s exclusion amount.
  4. Not equalizing assets through gifts. Like the above mistake, this oversight also fails to take advantage of applicable exclusion amount.
  5. Not having a will. This one’s a no-brainer. Without a will, it’s unlikely that personal wishes will be followed, and probate property will be passed on according to state laws, possibly at increased costs.
  6. Improper ownership of life insurance. “Most policies are owned by the insured, payable to the insured’s estate or survivors and therefore are included in the owner’s taxable estate,” McCarthy writes. “Policy owners should consider giving policies directly to the beneficiaries or transferring them to an irrevocable trust to avoid a large estate tax bite.”
  7. Being both donor and custodian on a UGMA/UTMA account. If your clients are contributing to an account, and serve as the custodian, it may be included in their estates, increasing the potential estate taxes.
  8. Not keeping track of assets. An unorganized estate plan may lead to uncollected assets.
  9. Naming the wrong executor. Spouses and family members probably have bigger things on their mind following a death. McCarthy recommends passing those duties on to a professional or trust company.
  10. Not keeping the plan up to date. Hopefully, your clients are leading a full and happy life. This may make death an uncomfortable subject, but one that’s so much more important as economic, health and family changes demand a regularly revised estate plan.