Avoid These Estate-Planning Pitfalls

Christine Benz |

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The biggest mistake is a misunderstanding of beneficiary designations. Many assets today are transferred at death through a beneficiary designation. Good examples of these assets are IRA rollovers, Roth IRAs, life insurance policies, annuities, any kind of plan that we call a qualified plan, meaning they're qualified for favorable income-tax treatment, such as a 401(k). People don't understand that getting those designations right is extremely important. Instead of naming your children as beneficiaries if they inherit assets and your spouse isn't living, maybe you would pay it to a trust. And when it's paid to a trust, then the trustee takes over, and there is usually no court accounting. And furthermore, you don't have to give it to children at age 18 under the trust. You might get the kids through college and working a few years before you start to give them money. Another provision in the gift tax law states that, in addition to making these $12,000 annual gifts, we can all write checks directly for medical or education and there is no limit. So when your grandchild is headed off to college, the first semester's tuition is $30,000, grandpa can write a check to the treasurer of the college. Such gifts would be free of gift tax.