William Penn Life, 2001 (36. évfolyam, 1-12. szám)
2001-09-01 / 9. szám
Future shock The Top 10 pitfalls of estate planning and from the Life and Health Insurance Foundation for Education (LIFE) SETTLING AN ESTATE CAN BE devastating to a family's finances. Heirs are often left with many unanticipated expenses, ranging from debts to taxes to administrative fees. So heirs are often forced to liquidate assets, like the family home or the family business. This hurried liquidation can reduce an estate to a fraction of its former self. Life insurance is important in estate planning, because the proceeds from life insurance are payable immediately and can be used to meet these expenses. Life insurance helps to ensure that an estate passes to your heirs, not to your tax collectors. To avoid the latter prospect, be on the watch for the following 10 pitfalls in estate planning and work with an attorney on your individual estate plan. Although there are more than 10 pitfalls, it is doubtful that any others could do more damage. 1. Failure to Make a Proper Will and Revise It Periodically. By failing to prepare a will, you surrender the right to distribute your property and allow the state to take over that task. Even after a will has been prepared, it may be seriously outmoded at death unless reviewed periodically. 2. Lack of Flexibility in Planning. A will must be drafted with enough flexibility to permit heirs to deal with emergencies or changing needs. Ideally, a will should take into account not only current family requirements, but also future needs. Planning for the future, however, should not override basic necessities. For example, you may provide for your child's college education without permitting proceeds to be diverted for any other purpose other than college, although the money is needed for food and shelter. 3. Not Enough Liquidity at Death. If an estate plan does not provide enough cash to cover final expenses, valuable assets may have to be sold immediately, often at a fraction of their value. Thus, estate shrinkage must be taken into account when preparing an estate plan. One solution is life insurance, which can provide the required liquidity at death. Life insurance proceeds are not generally subject to income tax and, when properly structured, may not be subject to applicable estate taxes. 4. Failure to Plan for Disposal of Business Interest. Intelligent planning can provide a guaranteed buyer for a business interest at a guaranteed sales price with assurance that money will be on hand instantly when death occurs. Another option is for heirs to continue the business. Advance planning will give them the best possible chance of succeeding. 5. Failure to Arrange and Integrate Life Insurance with Other Assets Life insurance policies should be checked periodically and integrated with other assets, such as Social Security and stocks and bonds, to form a cohesive plan. 6. Failure to Take Advantage of Tax Saving Mechanisms. Estate plans should be reviewed annually to make sure that any tax law changes are reflected in the plan and to take advantage of any new tax-saving how to avoid them method. In fact, any properly drafted estate plan will strive for the greatest tax savings possible. 7. Failure to Plan for Retirement. Retirement plans and goals must be specifically identified. Unless such plans are known, an estate planner cannot determine whether sufficient funds are available to accommodate retirement desires. 8. Overdependence on Government and Employer-Provided Insurance and Pension Plans. Social Security and pension benefits may be considerable. But overreliance on them can be disastrous. For example, if you change jobs and fail to convert group insurance coverage on time, you may become uninsurable and die grossly underinsured. Or, if you decide to return to work after retiring, you may lose most Social Security benefits due to regulations governing earnings. 9. Failure to Apportion Sensibly. Funds should be allocated based on your risk tolerance. This means that life insurance and an emergency savings account should be primary concerns. Higher-risk investments may be appropriate if your risk tolerance so permits. 10. Failure to Prepare an Estate Plan and Review It Periodically Proper planning and periodic reviews can help eliminate most common estate planning pitfalls. |\y|>| [ Money Links For more information on estate planning and on the value and importance of life insurance, log onto the website of the Life and Health Insurance Foundation for Education (LIFE) at: O www.life-line.org 4 William Pen Life, September 2001
