Estate Planning Dos and Don'ts


Estate planning can be a complicated business, especially when families have suffered huge loses in real estate and in the stock market.

To simplify things, keep the following in mind when you’re planning your estate.

1. Do Make a Will
Picasso, John Denver, Jimi Hendrix and Sonny Bono all passed away without a will. Anna Nicole Smith’s will was so badly drafted that it was effectively meaningless.

Don’t let that happen to you. A will ensures you have the legal means to name heirs and list assets after your death. Without a will, the state usually decides who gets what in a very expensive, angst-ridden and time-consuming process.

2. Do Establish a Trust

Like a will, a trust protects your interests and those of your family. That’s especially true of real estate, which are often held in trusts for named beneficiaries. Family trusts are more tax-friendly than doling out parcels of real estate individually outside of the trust, and they provide more control and discretion over the property while the trustee is still alive.

3. Do Give Away Land
Donating your land to a charity like the Nature Conservancy makes good sense, especially when you have real estate that doesn’t cost you much and that you have no plans to develop.

Donating land can cut your federal and state income tax liability. It can also lower capital gains taxes that would be put into play from selling the property.  When an individual opts to give the title of his land to charity, that individual can take the full fair market value of the land (as determined by a certified real estate appraiser) as a charitable deduction. That’s not all. The land’s value is also removed from the individual’s estate, further decreasing estate tax liability.

As the individual no longer owns the land, he doesn’t have to pay property taxes on that land. But he still knows his property will be protected and cared for by the new owners.

Usually, people give land away for tax breaks. The most common ways to do that are:

  • Through charitable remainder unitrusts. With this type of transaction, the donor gives real estate to an organization that sells the property and places the proceeds in a trust. The donor receives a variable income payment of up to 20 years, or the life of the donor and spouse, whichever occurs first.
  • Through charitable gift annuities. The donor contributes real estate to a qualified not-for-profit organization that sells the property and holds the proceeds. The donor receives a fixed annuity payment for life.

4. Do Establish a Durable Power of Attorney
If you are incapacitated, you can designate a trusted family member, friend, or professional to do it for you. By assigning a power of attorney, you can ensure that payments and taxes are always made on your real estate properties, and that all necessary paperwork is filed and organized.

There are also a few don’ts you want to keep in mind when you’re crafting your estate plan.

1. Don’t Keep Your Estate Planning Lawyer Out of the Loop
The risk of triggering tax and legal problems is very real. If you transfer real estate assets out of a trust, buy or sell property, or otherwise change your real estate portfolio, make sure you let your estate planning attorney know.

2. Don’t Assume Your Bank Keeps Track of Real Estate Documents
It’s your responsibility to monitor all of your real estate paperwork. Companies merge, diverge, collapse and move around all the time, especially in this lousy economy. Don’t assume that your mortgage bank or lender is making the safe storage of your property title and other paperwork a high priority.  If, in the maelstrom of the moment, your property documents are misplaced, misfiled, or inaccurately recorded by a new company, your heirs will have a major headache.

So once a year, contact your mortgage lender and ask for a copy of key documents, like titles, deeds, and beneficiary designations.

3. Don’t  Forget to Have a Back-Up Plan
Few folks want to consider it, but there is a possibility that you may out live your beneficiaries. As a result, some thought and planning should be applied to a Plan B, i.e., who your heir would be should your primary beneficiaries predecease you. Usually that means a different family member or friend, and that’s jut fine. The key is having that contingency plan in place so that you have a named beneficiary. If not, the state will step in and name one for you.

If you keep these dos and don’ts in mind, your estate planning process will be significantly easier to manage, more effective in its execution, and save you and your loved ones time and money.


Related Stories:

How Wills Can Crack Strong Families

How Much Life Insurance Do You Need?

6 Steps for Establishing a Living Trust



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