If you are ready to create a plan to protect your assets and provide instructions regarding your assets, you might have certain legal documents in mind, such as a last will and testament or a trust. If your adult children are younger and still growing your family with marriages and births, you might wind up amending your plan at some point by adding new beneficiaries to it. There are certain estate planning issues, however, that are easily overlooked.
Many people are not even aware of these issues, especially if they haven’t met with an experienced adviser who is well-versed in estate laws. It’s good to have a will in place, as well as other basic documents, but it is also wise to make sure that you understand some of the more complex issues that may arise when the time comes to administer your estate.
Income that has not been taxed at the time of your death
There’s a legal term in estate planning known as Income in Respect of a Decedent (IRD). As you execute an estate plan, you will want to be aware of certain types of income you might have, which might not be taxed and would therefore cause your estate or beneficiaries to owe taxes at the time of your death. The following list shows various types of income that could fall under this category:
- Commissions you might have made through sales
- A payout from an Individual Retirement Account (IRA)
- Income stemming from a savings bond
- Uncollected rent
There are certain types of trusts that may help postpone such taxes, until the death of a surviving spouse. However, you would have to have signed that trust as part of your estate plan for it to be relevant to an IRD issue.
Make sure that beneficiaries named in estate plan align with your accounts
Another issue that is often overlooked in the estate planning process has to do with naming beneficiaries. You might have a bank account, retirement plan or other account, such as a life insurance policy, where you have named a beneficiary as part of the account. If you then execute an estate plan and list another person as the beneficiary, complications can arise when the time comes to administer your estate.
By law, any assets existing in an account that has a beneficiary’s name attached to it must go to that individual, even if you have designated a different beneficiary in your estate plan. To avoid such problems, it is always a good idea to make sure that the names of beneficiaries are the same in your estate plan as they are in association with any assets you might have in various accounts.
A periodic review of your estate plan is helpful
Estate planning is a valuable tool that you can employ at any time, provided you are of sound mind and have executed documents in accordance with state laws. An outdated plan may not only not be useful, but it can also spark legal complications for family members and others during probate. By conducting a periodic review of your plan and making any additions or deletions, as needed, you can keep it updated, which will make the administration process a lot less stressful for your loved ones.