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Kimberly Horn: Estate Planning Dos and Don’ts

The term estate planning can be intimidating when thrown around in conversation. However, it is a vital process that everyone must embrace to eliminate uncertainties associated with the administration of your property. With the proper planning and executed strategies, you can reduce taxes and other expenses while also controlling the distribution of your legacy.

Kimberly Horn
Kimberly Horn

Outlined below are several popular components of estate planning.

Estate planning documents: A will, advance health-care directive, durable power of attorney for finance, durable power of attorney for health care, and a living trust are the typical and key documents to establish. Appropriate titling of your assets is crucial as well. It is important to have a full list of assets and review them with your advisor and attorney every year.

Employer legal insurance: If you work for a large institution, for example UCSB, look into their legal offerings. Typically they offer a discount for employees to secure estate documents. Additionally, they will provide you with a list of approved local attorneys.

Gifting real estate with debt: Beware of unintended consequences when leaving real estate to heirs with mortgages attached to them. This will be important to review with your attorney to ensure that your intentions are properly outlined. For instance, if you are leaving two properties; one to each child and one property has debt associated with it, this should be taken into consideration. Depending on your goals, and if you intend to equalize your assets to your two children, this could become a major entanglement without addressing it in your estate documents.

The one child left behind: Often estate documents are created before a couple is done having children and the “final” child is unintentionally left out. This can easily be addressed by reviewing your documents every few years and updating them with your estate planning attorney.

The one child purposely left behind: If you are intentionally leaving out a child or family member in your living trust and will, please discuss with your attorney to take the appropriate precautions. It is commonly advised to leave $1 dollar as opposed to not mentioning the relative altogether, as it demonstrates it was intentional and not an oversight that can later be contested. An attorney can help with the wording so the language is written in such a way that future legal concerns are avoided.

Successor trustee: Identifying a successor trustee can be an anguishing decision. A family member, friend or corporate trustee are all viable options. Although there are pros and cons for each, I recommend thinking twice before naming all of your children equally. Naming one or two delegates can truly simplify matters. Losing a parent is very painful and difficult. Expecting all your children to be amicable after your death can sometimes be an unrealistic expectation. Family disputes arise even amongst the closest of siblings while working through the complexities of executing a family estate. It is best to communicate your successor trustee plans openly with your children before your demise regardless of your selection.

Bequeathing inhabited properties: Do you have real estate properties which currently have tenants? If so, then consider a clause in the tenants’ lease that will allow your heirs to evict and sell if they should see fit. This can avoid hassles for your heirs down the road should you pass away while holding tenant-occupied properties.

Bank deposit box: Look into labeling your bank deposit box in joint name so that the bank does not seal it closed upon your passing.

Spousal IRAs versus inherited IRAs: It is typically optimal to roll your deceased spouses IRA into a spousal IRA in your individual name and not into an inherited IRA. Not only is this a “free pass” from the IRS so that you can avoid the required minimum distributions of an inherited IRA (and the associated federal and state income taxes), but you are also avoiding a commonly unrecognized risk. Inherited IRAs are not protected from creditors in the event of a bankruptcy case.

Lifetime gifting: Gifting during your lifetime is both admirable and a strategic estate planning technique. But truth be told, it is important to not sacrifice your own retirement plan in the process.Reviewing your retirement plan with your financial advisor is paramount in these situations.

Beneficiaries: Review your beneficiaries on 401(k)s, 403(b)s, IRAs, annuities and life insurance to confirm they are up to date. Otherwise, these assets could transfer to an unintended recipient. Take the time to update them accordingly.

— Kimberly Horn, M.B.A., CFP, AAMS, AWMA, is a client advocate at Monarch Wealth Strategies. She can be reached at [email protected] or 805.564.0800 x123. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


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