8 Pitfalls of Estate Planning



1. Failure to Make a Proper Will or Living Trust and Revise It Periodically


By failing to prepare a will or revocable living trust, a decedent surrenders the right to distribute his or her property and allows the state to assume that task. A will or revocable living trust enables the decedent to control the distribution of his or her property. After a will or revocable living trust has been prepared, changes in the law require periodic reviews of these documents in order to properly fulfill the estate owner's plans.


2. Not Enough Liquidity at Death


If an estate plan does not provide enough cash to cover final expenses and taxes, valuable assets may have to be sold, often at a fraction of their value. Thus, estate shrinkage must be considered when preparing an estate plan. One solution is life insurance, which will automatically provide the required liquidity at death. In addition, life insurance proceeds can often be arranged so as not to be subject to estate tax.


3. Failure to Plan for Disposal of Business Interest


But-sell agreements can provide a guaranteed buyer for a business interest at a guaranteed sales price with the assurance that money will be readily available when death occurs. Another option is for heirs to continue the business. Advance planning will provide them the best possible chance of succeeding.


4. Failure to Arrange and Integrate Life Insurance with Other Assets


Life insurance policies should be checked periodically and integrated with other assets to form a cohesive plan.


5. Failure to Take Advantage of Tax Savings Mechanisms


Estate plans should be reviewed periodically to make sure that any tax law changes are reflected in the plan and to take advantage of any new tax savings method. A properly drafted estate plan will strive for the greatest tax savings possible. Every dollar that escapes tax results in an additional dollar for estate beneficiaries.


6. Failure to Plan for Retirement


Retirement plans and goals must be specifically identified. Unless these plans are known, a planner cannot determine whether enough funds are available to accommodate retirement desires.


7. Over Dependence on Government Disability and Business Insurance


Social Security and pension benefits can provide income, but over reliance on them can be disastrous. For example, if an individual changes jobs and loses group insurance coverage, he or she may become uninsurable and die grossly underinsured.


8. Failure to Prepare an Estate Plan and Review It Periodically


This is the most important category. With proper planning and periodic reviews, estate planning pitfalls are minimized.


Attorney Robert Adler focuses his practice on wills, trusts and estates. He can be reached at 212-843-4059 or 646-946-8327.

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