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Originally Published in the Times Reporter, New Philadelphia on June 1, 2008
Just like with anything in life, proper planning is critical when trying to make sure your assets are distributed to your beneficiaries in a timely manner and at the lowest possible cost after your death. The following is a list of six estate planning misconceptions that many people have and, as a result, negatively impact their estates upon their passing.
(1) People don’t think of themselves as having an “estate.”
All of the assets that you own are part of your estate. These assets include: cash, bank accounts, real estate, tangible personal property, life insurance, stocks, bonds, and business interests. If you don’t plan properly, your estate may not be distributed as you wished. In addition, with a little planning during your life, you can make the distribution of your assets to your beneficiaries after your death much faster and less costly.
(2) Underestimating the size of your estate and the impact of estate taxes.
Many people underestimate the size of their estate. If an estate is over $338,333, an Ohio Estate Tax return is required to be filed within 9 months after the date of death. The highest Ohio estate tax rate is 7%. If the estate is over $2,000,000(including life insurance proceeds), a Federal Estate Tax return is required to be filed within 9 months after the date of death. The highest Federal estate tax rate is 45%. Therefore, with the proper planning, a significant amount of Ohio and Federal estate taxes can be alleviated for your beneficiaries.
(3) Relying solely on a will for estate planning.
Based on your personal situation, you may need a trust as well as a will. Since a will does not control assets that are jointly owned or have beneficiary designations, it is very important that you also review how your assets are titled. The titling of your assets needs to be coordinated with your will and trust. Appreciate the complexity of developing a total estate plan and do not simply think you just need to do a simple will.
(4) Thinking a trust will save on estate taxes.
A common misconception is that assets in a trust will pass estate-tax free. Most trusts are revocable and assets placed in a trust are still included in an individual’s estate and subject to Ohio and Federal estate taxes.
(5) Not funding your trust.
Some people establish a trust, but fail to re-title their assets into the trust. As a result, they do not accomplish the probate avoidance that was intended. However, there are some assets such as IRA’s and other retirement type assets which should remain owned outside of the trust for income tax purposes. An evaluation needs to be done of each of your assets to determine how they should be titled.
(6) Not keeping your estate plan current.
Failure to keep your estate plan up to date during your life may result in the improper disposition of property to your beneficiaries and increased estate taxes and income taxes for your estate. Estate plans should be reviewed whenever your personal circumstances change or at least every 3 to 5 years to account for changes in the law.
Of course no one likes to think about their own mortality, but simply spending a little time during your life can save your family thousands of dollars and unneccessary family squabbling after your death. Therefore, take the time to develope a plan on how you want your estate to be distributed after your death, consider your alternatives, and then implement the plan with the help of an estate planning attorney. Your family will be thankful you did.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.