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Financial Literacy - Planning for your heirs
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8 ways to leave a mess for your heirs
If you harbor negative feelings toward your family, follow these steps to foster even more bad blood after you're gone.
Planning for your heirs

8 ways to leave a mess behind for your heirs

"If you get that property as a gift while a parent is alive, you take over your parent's cost basis," Orman says. If the property has appreciated in value since your parents bought it, you're on the hook for the gains, which will be taxed when you sell it.

If you live in a community property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, the rules for property ownership are different still.

"You have people who think that you can hold property in joint tenancy, which is not valid in community property states. But they think you can just own something together and it goes automatically to the other person. That's not a good idea for estate planning," says Christner. "If you have a very small amount of assets and live in a state that allows joint tenancy with right of survivorship, that may work, but it's basically not a good idea."

4. Dawdle indefinitely
Procrastination may be forgivable for young singles with no dependents, but if you never get around to doing anything, the grief experienced by your survivors will be compounded.

Inaction all but guarantees that tensions will run high after you pass.

"The biggest single mistake is avoiding the subject altogether. There are a couple of reasons that people do that. For one, it's not fun and I can't make it fun. Secondly it's procrastination, (caused by) fear of thinking about your own mortality," says Clifford.

"The rules for probating, or, in effect, determining whether you have a valid will, are somewhat different in every state. And if it's not valid in your state, then the intestate laws in your state determine how your property is distributed," says Christner.

Some people may put off doing anything because they don't feel it's the right time. But anyone with assets and a family to protect should at least have a will. "Everyone needs to do some estate planning. The only problem is when to do it," says Christner. "The day you should do it is the day you die because then nothing can change very much."

Failing that, "anyone with a significant amount of assets, who has children or a spouse should make up a will probably in their 30s or 40s or -- as I say -- the day they die."

5. Don't trust trusts
Going through probate, a necessity if you die intestate (or without a will), will result in your estate paying too many fees. Though often discussed, federal estate taxes won't even touch most estates, but court costs definitely will if not planned for. Why fritter away as much as 10 percent of your assets built throughout a lifetime of hard work?

"The whole purpose of having a trust is to avoid probate, because that allows your estate to pass to your loved ones without having to employ an attorney or go to the court. It just goes directly to your heirs and minimizes many of the expenses to your estate," says Berkley.

"A trust doesn't save taxes but it does save probate costs," says Christner. "Depending on the state, it probably saves between 8 (percent) and 10 percent of the total estate. If you leave everything you own in your estate and it all goes by will, then maybe 10 percent of it will go to attorneys, appraisers and executors."

-- Posted: Nov. 19, 2007
 
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