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Avoiding Critical Estate Planning Mistakes

Most people have heard of the estate tax. Also called the death tax, this is a tax that can wind up costing the beneficiaries of an estate a significant amount of their inheritance if the estate isn't planned carefully. Fortunately, there are estate planning tools that can help an estate owner maximize the amount of property that will ultimately be passed down to beneficiaries.

These tools can minimize the damage that the estate tax may cause to someone's inheritance. However, these tools can only be utilized properly when the owner of an estate and his or her attorney work together to avoid certain missteps and traps related to the estate planning process

Forgetting About the Estate Reduction

One of the easiest ways that people can decrease the amount of estate taxes that are paid is to simply reduce the estate prior to death. If the beneficiaries are going to receive the estate anyways, why not cut it down before the time comes? There is also a gift tax in place that limits the amount that one person can receive from a single person at $14,000 per year; however, if there are two spouses and multiple beneficiaries, each spouse can give each of these people up to $14,000 per year. This can significantly shrink the estate prior to someone's death, meaning that there is less of an estate to tax when the owner passes away.

Forgetting to Update the Will

People who are proactive may write out their will decades before they pass. During these years, the circumstances surrounding the family and their beneficiaries can change. Some children may fall on hard times and certain beneficiaries may even pass away. If the will isn't updated, this can lead to a legal mess when it comes time to pass down the estate. People need to make sure that the right people wind up with the right inheritance packages when they pass. To make this happen, everyone should make sure that they update their will on a regular basis.

Not Taking Advantage of a Life Insurance Trust

Many people don't realize that even though life insurance benefits are paid out when someone dies, these are still considered as part of the estate and can lead to a significantly larger price tag on the estate tax. Make sure that the life insurance policies are transferred into a life insurance trust. The trust will act as the owner of the policy and remove the life insurance benefits from the estate tax calculation. Then, the life insurance trust will pay out the life insurance benefits as instructed by the grantor.

These are only a few of the many mistakes that people regularly make when they are planning their estate. To maximize the benefits that people receive from the estate, it is vital for everyone to think about reaching out to an experienced estate planning attorney for assistance.

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