Estate plans allow you to reduce your beneficiaries’ tax liabilities after you die. They can also reduce the potential of estate litigation due to disagreements between your heirs.
While estate planning can help you maximize your estate’s value, it’s important to avoid common mistakes. This will protect your loved ones and ensure your wishes are upheld.
Not considering the possibility of disability
When creating an estate plan, you are likely thinking ahead to a time you will no longer be alive. However, it’s also possible to use this plan in case of a disability.
Most people aren’t prepared for an unexpected disability or the impact it can have. In some situations, the unexpected disability you experience may make you unable to make medical or financial decisions for yourself. In your estate plan, you can designate a family member or trusted friend as a durable power of attorney to make these decisions for you. This ensures that someone is making decisions based on your wants and wishes.
Not using gifts to reduce estate tax
Each year, you are allocated, by the IRS, to gift your spouse a certain amount. Gifts of up to $15,000 can be given each year to your spouse and excluded from your estate tax. When you pass away, this reduction can be significant for your beneficiaries.
During the Trump administration, the assets you can gift before a federal estate tax or gift tax is applied were doubled. For 2022, this amount is $12.06 million. Additional gifts after or before death will be taxed.
Protecting your loved ones with a well-thought-out estate plan
When you take the time to think out your estate plan and avoid the mistakes above, you can make the most of these documents. Knowing your legal options and rights will help with this, too.