HOW TO FIX FIVE COMMON ESTATE PLANNING MISTAKES
HAVE YOU MADE ANY OF THESE MISTAKES?
Mistake #1: Not protected your children’s inheritance when you marry again.
If you die before your spouse, your current plan likely gives the bulk of your assets to your spouse. Your spouse has the power to change your plan and leave nothing to your children. He or she might remarry. Upon the death of your spouse, Michigan law automatically gives over $150,000 to the new spouse as a minimum share if we take no steps now to stop it. Your spouse may also be subject to attack by criminals and cheats who would take advantage of age and grief. Many predators are currently selling annuities which tie up all the cash for 10 years with large penalties for early withdrawal. Thieves can also use reverse mortgages to take the home from unsuspecting widows and widowers.
We have documents and procedures that can replace these concerns with peace of mind.
Mistake #2: Made your stocks or home joint with your children.
Joint ownership can result in hidden income taxes and make your assets available to pay your child’s debts.
When you die, a properly set up joint tenancy does avoid probate just as you planned but the child must pay an income tax on the gain which is calculated based on your original cost of the house or stock.
Example A: Your house and lot cost $50,000 in 1965. You put in $20,000 of improvements. Your adjusted cost basis is the total, $70,000. After your death your child as surviving joint owner sells the house for $220,000.
| Sale Price |
$220,000 |
| Cost basis |
- 70,000 |
| Taxable Profit |
150,000 |
| |
|
| Income Tax |
$22,500 |
However, if one of our planning methods were used, your child's cost basis would be "stepped up" to the value of the property on your date of death and little or no tax would be owed.
Example B: Same facts as above but tax-saving plan signed:
| Sale Price |
$220,000 |
| Stepped up cost basis |
- 220,000 |
| Taxable Profit |
NONE |
| |
|
| Income Tax |
NONE |
Joint ownership is also dangerous in that it can make your assets available to pay claims by your child’s creditors in the event of unpaid debt, a divorce and automobile accident lawsuits.
We will discuss ways to eliminate these problems and still avoid probate during your free conference.
Mistake #3: Ignored nursing home costs in your plan.
Most traditional estate plans fail to provide for a stay in a nursing home. After one to four months of coverage under most medical insurance plans, many families are surprised to find out that they need to pay the entire cost (average $6,000.00 per month) out of family savings. Most people think that the only way to qualify for Medicaid assistance in a nursing home is to spend the family money and investments down to $2,000.00. We can help make sure assets are in the right name and exempt them from being counted by Medicaid. Gifting to is still allowed under Michigan law up to $10,500.00 per month. Special language regarding gifting is needed in a power of attorney to activate this type of plan. We can explain a series of steps you can take to maximize your benefits under Medicaid and legally save money for your family.
Mistake #4: Allowed your children to receive their inheritance at age 18.
Most children are not ready to manage a large or even moderate inheritance at age 18. But that is the age Michigan law requires conservators to turn money over without any protection or guidance. We have tools to protect minor children and teach them how to manage finances. We use several methods to assure that they will not receive the assets until they are old enough to control them wisely.
Mistake #5: Assumed that Wills avoid probate
Many people think that Wills avoid probate. They do not. If you die with assets in your name alone, they will have to be probated even if you have a Will. If you die with assets in your name alone and without a Will, Michigan law redirects ownership of all of your property to certain persons known as “heirs at law.” Often, these are not the persons you want to receive anything. In some cases property could even go to your brother-in-law! We will review this list as it pertains to your family during your conference. You will have the opportunity to change this list if you choose.
We will discuss other ways to hold assets to avoid probate.
PLEASE CALL 248-886-8622 FOR YOUR
FREE ANALYSIS TO FIND ANSWERS TO THESE CONCERNS
