Estate Planning Mistakes to Avoid
Passing on Property to Your Loved Ones
No one wants to think about death. Unfortunately, it is an inevitable proposition for all of us. As a result, most people have given some thought to estate planning and even taken steps to try to plan ahead. Instead of hiring a qualified Orange County estate planning lawyer to draft a plan, however, some choose to take short cuts. As detailed below, these seemingly inexpensive short cuts can result in disastrous consequences.
MISTAKE NUMBER ONE: Deeding property to children or other heirs in joint tenancy
When married clients are buying their first home, many times they are encouraged to take title as joint tenants. If individuals hold property together as joint tenants, if one dies, there is no need to probate the decedent's interest in the property. The property passes to the survivor by operation of law. All the joint tenant has to do is record an affidavit of death of joint tenant along with a death certificate, and the property will be in the survivor's name alone.
Because joint tenancy property does not have to be probated on one person's death, some clients mistakenly add heirs' names to title on their property as joint tenants. They do so because they think that when they die, the property will just pass easily to their heirs without the need for probate (and an estate plan). What they don't understand is that they are giving their heirs a present interest in the property. As such, whoever is put on title would have similar rights as the original owner. The heirs could force a sale of the property! Also, the heirs' creditors could potentially lien their interest in the property and the creditors also could force a sale. For all of these reasons, adding heirs as joint tenants on your property is a bad idea.
MISTAKE NUMBER TWO: Gifting your home to heirs while you are still alive
Some clients attempt to avoid planning by deeding their property to heirs while they are still alive. Obviously, the clients could be left homeless and penniless by going this route. However, assuming the heir has agreed to allow the client to live in the home until their death (and lives up to their agreement); there are still other negative consequences to making the gifts while you are alive. As discussed above, your home could be subject to your heirs' creditors.
More importantly, there are negative tax ramifications. A simple example will illustrate this point. Grandma buys a home in 1980 for $100,000.00. Currently, the home is worth 700,000.00. Grandma only has one son, John, and gifts her property to him while she is still living. John now has what is called a "carry over" basis in Grandma's home of $100,000.00 (Grandma's purchase price). If John sells the home after Grandma's death, he will potentially have a capital gain of $600,000.00. At the current federal capital gain rate of 25%, John will owe federal taxes in the amount of $150,000.00 on top of California capital gains tax. If instead, Grandma had created a trust that provided that her home would go to John on her death, John would receive a step-up in his basis to date of death value on the home. His basis in the property would be whatever the home was worth on Grandma's death. As a result, John would owe little if any capital gains. For all these reasons, gifting your home or other property to heirs while you are alive is not a substitute for good estate planning.
MISTAKE NUMBER THREE: Not hiring an experienced attorney to do your estate plan
Everyone has heard the advertisements for legal document service companies who prepare plans for a deep discount. The problem with these types of services is that you need a plan that is tailored for your situation. You need an attorney to explain the legal and tax ramifications of inserting certain language in your trust. In addition, you need someone to counsel you with respect to choices for trustees, executors, agents for health care and finances. You need someone to ensure that your trust is properly funded. Also, the only way you can assure that your plan reflects your intentions is to have an experienced attorney counseling you with respect to your choices and then inserting the appropriate language to carry out your intent. Too many times poorly drafted estate plans end up the subject of contentious lawsuits because someone tried to either do it themselves or hired someone that did not have the expertise to draft an appropriate plan. Simply put, as with many other things in life, you get what you pay for.
How an Orange County Estate Planning Attorney Can Help
Searching for a lawyer for an estate planning case in Orange County? Don't cut corners and make these costly mistakes. If you are searching for an estate planning attorney in Orange County, then need the very best. Hire an experienced estate planning attorney at Finlay Law Group, APC who will analyze your situation and make recommendations based on your unique needs. You can assure that you have done everything in your power to make your passing as painless as it can be for your heirs. Contact Orange County estate planning attorney Mary Finlay from the firm today by calling (888) 896-9350! You can also fill out an online free case evaluation form to get started on your case.