Estate Planning Mistakes To Avoid | Bankrate.com

retirement

Dying is generally an unpredictable event, but planning for your passing can make it easier for everyone. That is, unless estate planning goes terribly wrong.

Unfortunately, unless an error or bad plan comes to light while you're still alive and kicking, it can turn into a mega-problem after it's too late.

Estate planning mistakes can be made by an expert, or they can occur if you fail to communicate your intentions and plans to everyone involved.

Estate planning mistakes by professionals

Not knowing what you don't know makes a foray into the dense and specialized field of estate planning difficult for the uninitiated. If your attorney suggests something that ultimately harms the estate, how would you know?

Case in point: A lawsuit filed recently in Chicago alleges that a very high-profile estate planning attorney suggested that a client do a 60-day rollover with an inherited individual retirement account in order to satisfy taxes owed on the estate.

Anyone who deals with inherited IRAs should know this is absolutely not allowed. And the Internal Revenue Service will not allow the mistake to be remedied by a redo. Beneficiaries are on their own in seeking some sort of redress from the lawyer who gave them the bad advice in the first place -- hence the above-mentioned lawsuit.

Mistakes involving inherited IRAs typically occur after death -- after all, they can't be inherited until that point. However, plenty of estate planning mistakes occur while the testator, or the person doing the planning, is still in the pink.

Susan Wilkes of Clearwater, Fla., found that out when she hired an attorney to create a trust to protect her minor daughter. When she went to revise the trust six years later, she discovered that the pricey attorney she initially hired had made a mistake.

"She left the bulk of my trust to my minor daughter 'fee simple,' meaning that if I died, my financially irresponsible ex-husband, as my daughter's guardian, would receive a check for the large residual balance of my trust," says Wilkes.

Fee simple in this situation indicates that the inheritance would be given outright to the child. "Should the mother of the child die prior to the child becoming an adult, the father of the child, and ex-spouse, would be likely appointed as guardian of the child's inherited property until the child became an adult," says Ann Jakabcin, an attorney and principal at Stein Sperling in Rockville, Md.

Cash-deficient estate plans

In the case of the mishap with the inherited IRA, things may have gone differently if the estate had the cash to settle up with the tax man without liquidating assets.

That is another common difficulty in estate planning -- particularly with the popularity of transfer-on-death accounts. Joint accounts, beneficiary designations on insurance policies and transfer-on-death provisions on bank accounts all let assets jump over the probate process and land directly into the hands of the inheritor.

"That simplifies the distributions of those assets, but it may leave the executor of the estate no liquidity to pay taxes or that final income tax bill or doctor bills when you have designated beneficiaries on all of your liquid asset accounts," says Jakabcin.

In cases where the estate does not have the liquidity to pay bills or taxes, beneficiaries or heirs may have to come up with the money themselves. "Sometimes we have to see if we can allow the recipient of the IRA to loan money to the executor to pay bills. Credit card companies may be out of luck because there may be no ability for that creditor to go after the beneficiary for unpaid credit card bills, but taxes are another situation," she says.

The IRS can come after anyone involved, from the executor to the transferee -- the person receiving the assets.

Consider all the angles

Good estate planning should account for every contingency: What happens if the mother dies first; what happens if the father dies first; what happens if both parents die at the same time, and then the minor children die; or just one parent plus the kids die? All sorts of terrible things happen, and bad estate planning compounds the tragedy.

Do-it-yourself and store-bought wills often lack this perspective and foresight. For instance, after going through a wild time in her life, a woman had a baby with a disreputable man, a drug dealer by trade, according to the court system that convicted him. After having the baby, the woman woke up, took charge of her life and was promptly killed in a car accident. She died instantly at the accident; her son expired 12 hours later.

Source: http://www.bankrate.com/finance/retirement/estate-planning-mistakes-to-avoid-1.aspx

Kyrgyzstan Suspects in Boston Bombing Kerry Rhodes Daft Punk Get Lucky Texas explosion Paul Kevin Curtis man of steel