Common Estate Planning Mistakes – First in a Series

Estate Planning is especially complicated and, many times, mistakes can be quite costly both financially and emotionally.  I will discuss a number of common – and avoidable – estate planning mistakes over the next few posts.

Mistake #1:  Improper use of Jointly Held Property.

If excessively used or used by the wrong parties (especially by unmarried individuals), the “poor man’s will” becomes just a poor will.  For instance, double estate taxation is a distinct possibility if the joint ownership is between individuals other than spouses.  Also, in the case of a married couple, holding property jointly equates to a total loss of control at death since the surviving spouse can ignore the decedent’s wishes and dispose of the property any way the survivor chooses.  This is especially troublesome when the joint owners are in a second marriage.

Mistake #2:  Improperly Arranged Life Insurance.

Inadequate life insurance on the life of the breadwinner or on the “key-person” in a corporation can bring stinging financial hardship.  Many times, the proceeds of the policy is includable in the insured’s estate because he or she bought the policy and either never transferred the ownership to a third party (not the spouse) or remained in control (called “an incidence of control”) of the policy in some manner.

Mistake #3:  The Unholy Triangle.  This is really an offshoot of #2 but it deserves it’s own paragraph.  This occurs when three separate entities / people are party to a life insurance contract.  For example, if the wife is the owner of a life insurance policy on the husband (the insured) and the children are made the beneficiaries, then the proceeds are considered a taxable gift to the children.  We will cover more on this topic in a later post.

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