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Apr 2003
01
April 01, 2003

Three Costly Estate Planning Mistakes to Avoid

Even though an unpleasant topic, you should give thought to your estate plan and avoid the following costly mistakes:

  1. Procrastination. Don't let Michigan law draft your estate plan for you. Who will be the guardian of your children? Who will receive your property? Who will be your personal representative or executor? Without estate planning, unnecessary disputes may arise between your family members and needless taxes and administration costs may be paid.

    If you have an estate plan, you need to revisit your plan when there is a change in the people in your life or when there is a substantial change in assets. Has there been a birth, marriage, divorce, or death in your family that impacts your plan?

  2. Neglecting Business Issues. Owners of businesses must determine how their business should be handled upon incapacity or death. Who will vote your stock? Who will provide day-to-day management of the business? Who will decide whether the business should be sold, and at what price? How will business interests pass to beneficiaries? These decisions can have a major impact on family harmony and the success of your business.

  3. Improperly Titling Assets. Many estate plans will work as desired only if title to your assets is coordinated with your estate plan.

    Joint Ownership. Joint property can work great in some circumstances, and create havoc in others.
    • Property that is joint with rights of survivorship passes directly to the surviving tenant and not as you provide in your will or trust. This may result in an unintended benefit to or exclusion of beneficiaries.

    • Joint property is fully taxed in the estate of the first tenant to die, unless the surviving tenant can show their contribution. In addition, placing property in joint name is a gift to the other joint tenant, which may result in a taxable gift.

    • Joint property is exposed to the creditors of both owners.

Equalizing Estates. For married couples, improper titling of property between you can waste your estate tax exemption. Generally, it is recommended to have assets with each spouse's name at least equal to each spouse's estate tax exemption.

For example, if a couple had a combined net worth of $2,000,000, each spouse should have assets with $1,000,000 in their name (or trust). If instead one spouse had assets worth $400,000 in their name and that spouse dies first, only $400,000 of that spouse's $1,000,000 estate tax exemption is used. When the second spouse dies (in 2003), of that spouse's $1,600,000 estate, $1,000,000 will be exempted from estate tax and $600,000 will be subject to an estate tax of roughly 45%. If both spouses had assets worth $1,000,000 in their name (or trust), there would be no estate tax.

If you have any questions regarding the information set forth above, or if you would like to develop or revisit your estate plan, feel free to contact the author directly.

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Amie L. Vanover, is an associate with Warner Norcross & Judd LLP. She focuses on trusts & estate planning law. Amie may be reached in the Grand Rapids office at 616.752.2716. Warner Norcross & Judd is a full-service law firm with offices in Grand Rapids, Holland, Metro Detroit and Muskegon. Because each business situation is different, this information is intended for general information purposes only and is not intended to provide legal advice.

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