Estate Planning Mistake #1


TO DO NOTHING is the first mistake that people make. Most people procrastinate when it comes to planning their estates. This is totally understandable. Who wants to spend time and money discussing things like illness, death and estate taxes. If given the choice between this and watching the playoffs on TV, the playoffs will win out 9 out of 10 times. But to do nothing means that if you die and you don’t have a will or revocable trust, your property will be distributed according to the state by way of intestacy laws. This will most likely result in property being passed down in a way you may not have wanted.  Many clients rely on the fact that their deed to their home or their bank accounts are set up as joint tenancy assets with right of survivorship. While it is true that the surviving owner of the deed or account will own the asset without having to deal with the Surrogate’s Court, the problem comes in when that person decides to add a child to the deed or account as a joint owner. This creates gift tax consequences to the parent since he/she is actually making a gift to the child to the extent of the percentage of the value of the asset actually gifted. In addition, the child will be subject to potentially large capital gains tax when the asset is ultimately sold after the parents death due to the fact that the asset was not inherited, but was gifted. So when the asset is sold, the child will pay capital gains tax on the difference between the sales price and the price that the parent had paid for the property. Had it been inherited, the child would have received the benefit of a stepped-up basis. This means that the value at the time the parent died will be used to determine the capital gain, not the value at the time the parent purchased. Thus, the capital gain will be much less in the second scenario where the property is inherited and not gifted to the child.

Another problem with joint tenancy that is common is that many times the parent adds one child to the deed with the hopes that he or she will “do the right thing” for his/her brothers and sisters. There is no guarantee this will happen. Many other circumstances can derail this plan, such as spousal influence and  creditors. Imagine adding your son to your deed only to find out that he is now being sued for 5 million dollars as a result of an accident and the liability coverage is only 1 million. Your home will now be an asset used to satisfy the judgment if the injured party is successful in court.

Don’t try to take shortcuts like the ones described above. Sure they will allow you to avoid the issues of estate planning, but in doing so you will be putting your hard earned money and property at risk while leaving your family with many potential internal issues to resolve.

I hope this helps show why doing nothing is a mistake. Stop making excuses and take the important step to at least consult with an estate planning attorney concerning your situation and your family dynamics.

The Law Office of William J. Reinhardt, Jr. has been assisting individuals and their families with estate planning for over 25 years. Please call 718-377-8880 or send an e-mail to bill@billreinhardtlaw.com for a free consultation concerning your estate plan.


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