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10 Mistakes To Avoid In Inheritance Planning

Published July 24, 2019 by Brady Cobin Law Group, PLLC
10 Mistakes To Avoid In Inheritance Planning

The time to sit down and do estate planning including a will, health care directive, powers of attorney is when you have time to think about what you want and are not rushed to make potentially difficult decisions.

An estate planning attorney at Brady Cobin Law Group in Raleigh can help you ensure that your inheritance plans are carefully laid so that your estate will be settled and your property distributed as you wish. We have helped people throughout North Carolina plan for the future.

Below we discuss 10 estate planning mistakes you will want to avoid to make life easier for yourself and your family.

Waiting to start estate planning

It’s an unfortunate fact that you can die at any time. If you do not have a will, then someone other than you will decide who receives your money and belongings. Many married couples think all property passes automatically to a surviving spouse if there is no will. That is not the case in North Carolina. If you become medically incapacitated, as a result of an accident and you do not have a health care directive (or advanced directive), then decisions about your care will be made by someone else, potentially a judge you have never met.

Thinking all you need is a will

All of us have some idea of the concept of a last will and testament. A will designates how your property and money are divided after your death. As suggested above, there are more eventualities to consider. Imagine yourself in a hospital bed aware of what is going on but unable to speak, and thinking “No, no, stop …” A fully protective estate plan includes a health care directive specifying what medical treatment you do or don’t want if you are incapacitated. It also should include authorizations to access your medical information and the designation of trusted individuals as your health care power of attorney and your financial power of attorney, which grants authority to act on your behalf. 

Not considering a trust

In some cases, establishing a revocable, or living, trust is a more efficient way to establish how your estate will be managed, including how assets that become part of the trust will be distributed. Trusts are not subject to probate. In a living trust, you name yourself and spouse (for example) as trustees and one or more alternate trustees who assume control of the trust upon the death of the last surviving primary trustee. Control passes automatically. You can set up trusts for specific assets that you want to pass to specific beneficiaries upon your death, such as a charity. You can also empower trustees to manage your affairs if you are incapacitated.

Not naming alternatives

As you name an executor of your will or an individual to assume power of attorney, keep in mind that the individuals you select are subject to life changes that could leave them unable to act on your behalf or serve as your executor. It is prudent to name an alternative in case the person you selected is unable to serve. If no alternative has been named, the local Clerk of Court may determine who fulfills the role.

Naming improper beneficiaries of the inheritance

Two impulses we frequently see among clients planning wills are to name “the estate” or a minor-age child as heirs. Either ensures that your will goes into probate upon your death. Probate is a legal process in which the court administers the will, which is time-consuming and costly. If a minor is named as a beneficiary, a judge will appoint a legal guardian for the minor, who receives their inheritance at age 18. Naming the estate as a beneficiary increases tax liability in most cases. We can show you better approaches to the same distribution of your assets.

Forgetting about beneficiary accounts

Certain assets are known as “non-probate assets,” which means their ownership passes outside of the directives of a will or trust. They are inherited by a designated beneficiary. Examples include insurance policies and retirement accounts, such as Roth IRAs. Part of proper inheritance planning is to make sure all such accounts are updated to name the correct beneficiary. A policy or account established before you were married may list a parent as the beneficiary, for example.

Not planning for a nursing home

Federal statistics say 35 percent of Americans will eventually enter a nursing home. If you do not have long-term care insurance, your nursing home stay will likely be funded through Medicaid, which requires many applicants to “spend down” their assets before they can qualify for coverage. A Medicaid Asset Protection Trust (MAPT) protects assets from nursing home costs after the assets are in the trust for five years. It is very important to know long-term care strategy in Medicaid Planning.

Not making a gift to lower estate taxes

 Before inheritance from an estate is distributed, the estate must settle its debts, including taxes. The IRS code provides annual exclusions from taxation on gifts, so making annual gifts to individuals and charities reduces the taxable assets in your estate, which leaves more of the assets you eventually leave behind to be distributed as an inheritance. 

Not planning for inheritance taxes

An inheritance is considered taxable income. Taxes are typically based on the value of the inherited asset as of the date of the decedent’s death, known as the “tax basis.” One approach is to maximize the tax basis of assets to be passed to beneficiaries of a will, with the objective of the heirs promptly selling them to avoid income tax consequences. Gifts of stock are also often overlooked, as well. If they gain in value, as is the expectation, the heir may have to pay capital gains upon selling that stock.

Thinking you have a plan and are done

 Any change in your life that touches on finances should prompt you to revisit your estate plan. Whether you have experienced a significant life event such as the birth or death of a loved one, change of marital status or the sale of a piece of real estate, you should make sure that your estate plans are secured and updated to ensure that your assets are distributed according to your wishes after you die. Laws change, as well. It is good to review your plan every three years.

Today is a Good Day for Estate and Inheritance Planning

It is very important to select the right estate planning attorney. The trusted attorneys at Brady Cobin Law Group in Raleigh offer compassionate and personalized advice about estate planning and inheritance so you can avoid the above mistakes that can affect your privacy. There are also example celebrities who highlighted how wills and trust affected their privacy. We take the time to understand your goals, then develop a plan tailored to meet your needs. No matter what your circumstances are, we can help build a plan that works for you and your family.

The biggest mistake is not to have an estate plan in place when your loved ones need it. Don’t make costly inheritance planning mistakes. Schedule a consultation today with one of our experienced Raleigh estate planning attorneys.

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