Peacock Tales • Winter 2010

More Estate and Business Planning Mistakes

This is the second of two articles that address twelve common estate and business planning mistakes. The first six were outlined in the October 2009 issue of Peacock Tales. Below you will find the remaining six.

  1. Having inadequate beneficiary designations for retirement plans and IRAs that do not coordinate with the rest of the estate plan. Dealing with these assets in an estate plan can pose some of the most difficult and complex issues you will face. You should review all beneficiary designation forms for life insurance policies, annuity arrangements, and retirement plans (including IRAs). For retirement plans, you should also review the plan document itself to understand all of the beneficiary options. You should coordinate beneficiary designations with the balance of the estate plan, including will and provisions, marital provisions, credit provisions and trusts for children or disabled heirs. Careful drafting is required to avoid unfavorable income and estate tax results.
  2. Ignoring formalities to assure that a business entity is respected. When a business entity neglects to hold regular shareholder/member/partner and board of director meetings, or fails to include written meeting minutes in the entity's records, or the principal ignores other business formalities such as separating personal funds business funds, courts can "pierce the corporate (or business) veil" and hold the business owner personally liable for the liabilities of the company.
  3. Failing to properly plan for family business succession. You should consider types of entities that allow a transfer of interest to family members with little or no loss of management or control for yourself while alive. The main goal may be to allow you to retain control and derive income from the entity, while removing considerable estate value through gifts of interests, or making gifts using the applicable exemption amount or the annual gift tax exclusion amount. An understanding of estate and gift tax ramifications of gifts of entity interests, such as valuation issues and available discounts, is also crucial.
  4. Not being aware of the income tax ramifications for each personal, investment, or business decision, or failing to take advantage of all available deductions, credits, and opportunities. These oversights and ignorance of changing tax laws can result in additional and significant cost to a decision or transaction. Decisions such as choosing a business entity, purchasing a business, contributions to 401(k) plans and IRAs, and the use of trusts, have tax consequences that should be fully understood before acting.
  5. Failing to incorporate trusts adequately for asset protection purposes in the estate plan. One major benefit of having a trust is the asset protection it provides for its creator and beneficiaries especially where a significant amount of money in involved. Trusts can also protect the heirs from predators and serve as a controlled release of family wealth. Many trusts include a "spendthrift provision" which bars beneficiaries from anticipating, pledging or borrowing against their trust interest as collateral. These benefits can only be realized if the trust is implemented or funded and assets are transferred to it.
  6. Failing to consider long-term care needs. Americans are living longer. Significantly more people need assistance because they can no longer live independently. In 2008, the average national rate for a private room in a nursing or skilled facility was $77,380 per year and a semi-private room averaged $69,715 per year. Assisted living averaged $36,372 annually. Have you planned for a longer retirement?

If one or more of the twelve mistakes apply to you, please discuss it with one of the estate planning attorneys at Peacock Keller.


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