​ESTATE PLANNING PITFALLS
/’pit,fôl/ noun: pitfall: a hidden or unsuspected danger or difficulty.
Synonyms: hazard, danger, risk, peril, difficulty, catch, snag, stumbling
block, drawback.
A hidden danger sounds pretty serious doesn’t it? But we know
they are out there. Pitfalls on the roads, pitfalls in our careers and even
INSIDE
Pitfalls, like potholes, are
more easily avoided if you
know where they are. So
it is with estate planning
pitfalls. In our lead article,
we point out some common
pitfalls to avoid while you
still can.
Have you seen infomercials
with famous actors pitching
the benefits of reverse
mortgages? What is a
reverse mortgage? Is it “too
good to be true”? Perhaps,
or perhaps not. How do you
know if one is right for you?
pitfalls in our estate planning.
Many of these are just a matter
of personal, basic due diligence
— updating your information and
making sure your estate planning
attorney is aware of changes in
your life.
Beneficiary Designations
For example, an easy one to
avoid is designating beneficiaries
or transfer on death designations
that are in conflict with your estate
planning objectives or that do not
take into consideration income
tax consequences. Keeping your
beneficiary designations current is
vital to the success of your estate
plan. Likely, many of your assets
will usually pass by method,
such as life insurance, annuities,
IRAs and tax-deferred benefits. In
addition, the nonprobate transfer
laws of many states provide for
“pay on death” or “transfer on
death” designations. Consequently,
you may designate beneficiaries
for bank accounts, CDs, stocks
and other assets. While all of this
is great news, remember to heed
the advice of your estate planning
attorney when designating a
beneficiary. Why? Because an
inconsistent designation could
possibly present an issue and
cancel out the distribution plan
you created in your will or trust. If
this happens, any asset protection
or tax planning built into your
legal documents might also be
short-circuited.
Joint Ownership of Your
Bank Accounts
Adding a child as joint owner on
your bank accounts as a “convenience” is a common temptation,
especially in you later years. Resist
the temptation. It can backfire
with unintended consequences.
For example, do you really want
your assets subject to the divorce,
lawsuit and bankruptcy of your
joint tenant? By the way, the more
joint tenants you add, the greater
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your risk. Also, when you die, the
assets held in joint tenancy will
pass directly to the surviving joint
owner (or owners) and potentially
disrupt the plans you had for the
distribution of your assets under
your will or trust.
Naming Trustees
Naming one child as trustee over
his or her siblings? When has this
ever been a good idea? Siblings
have been known to fight, and that
only intensifies when their spouses
are involved. Avoid unnecessary
tension between siblings, as there
already may be hard feelings
over perceived preferential
treatment over the years. Consider
appointing a disinterested third
party to deal with this and avoid
some strife. After all, you will
not be there to put the offending
parties in “time out” or “send them
to their rooms,” if necessary.
Considering Special Needs
Failing to adequately plan for
individuals with special needs or
disabilities can be a huge oversight. You do not want to leave an
outright inheritance to a loved one
with special needs or a disability.
Why? The inheritance itself could
negatively impact the current or
future eligibility of that loved one
from receiving public assistance
benefits to which they are entitled.
And, if they do receive public assistance, then the inheritance
may be required to reimburse the
state instead of passing to your
other family members. This is
not a do-it-yourself project. Your
estate planning attorney can help
create a special needs trust or
supplemental needs trust to “own”
the inheritance in a trust rather
than being owned by your loved
one with special needs. The in-
heritance will be managed by an
independent trustee who provides
benefits as specifically described in
the trust agreement.
Review Your Estate Plan
Failing to review your estate
plan on a regular basis can be a
major pitfall, but you likely will not
be around to see the train wreck.
Ideally, you should make it a habit
to visit with your estate planning
attorney about every two years, or
whenever there is a change in your
life, the lives of your loved ones or
in your financial situation (e.g.,
retirement).
ARE REVERSE MORTGAGES
WISE FOR SENIORS?
It would be wonderful to give
you an absolute yes or no, but like
so many things, it is important
to analyze how your specific
circumstances factor into the
answer.
A Reverse Mortgage is a
Special Type of Home Loan
Have you seen any of those infomercials promoting the wonders of
reverse mortgages? So, should you
sign on the dotted line?
First, remember that a reverse
mortgage is a special type of home
loan. Think conventional mortgage
… only in reverse. A reverse
mortgage lets the homeowners
(borrowers) take a portion of the
equity in their home and convert it
into cash to supplement their cash
flow or other uses. Basically, the
equity that has been accumulating
through the years is paid to the
homeowners.
Unlike a traditional home equity
loan or second mortgage, a reverse
mortgage does not require the
homeowners to repay the loan
until they are no longer living
in the home as their principal
residence, they pass away or until
a time when they do not meet their
mortgage obligations. A reverse
mortgage can be applied to the
purchase of a primary residence,
provided the homeowners can
make up the difference between
the amount of the reverse
mortgage and the purchase price
of the property to be purchased.
Making an Informed Decision
So, is a reverse mortgage a good
thing for a senior citizen?
In many instances, a
reverse mortgage can be very
advantageous, but again
homeowners should make an
informed decision. Look before you
leap. Sit down with your team of
advisors – your estate planning
attorney, financial advisor and
accountant. You will want to
“run the numbers” and look at
all sides of the issue, especially
tax and estate ramifications.
The law says that if you are
62 years of age or older, you can
sign a reverse mortgage.
The amount of money the
homeowners can borrow is
based on the equity he or she
has in the home, his or her age
and the applicable interest rate.
Generally speaking, the older
the borrower, the more they are
able to borrow. Experts typically
advise senior clients that a reverse mortgage can be advantageous if they are “cash poor” and
“equity rich.” The value in their
home can help them pay their
monthly debts and obligations.
A reverse mortgage can give the
homeowner a guaranteed source
of income, tax-free, for the rest
of his or her life. The best part
of a reverse mortgage is that the
homeowners get to continue living in their own home. Nonetheless, there are closing costs and
potentially higher rates of interest.
In addition, a reverse mortgage can
wipe out the equity in the home and
significantly impact inheritances
intended for your loved ones.
Make the Right Move
A reverse mortgage can be just
the ticket, but you should make
sure you know where you are going.
Do not sign on the dotted line
until you get some sound advice
regarding whether this is a good
move for you.
Rial Moulton
1220 N Mullan Road
Spokane, WA 99206
Note: Nothing in this publication is
intended or written to be used, and cannot
be used by any person for the purpose
of avoiding tax penalties regarding
any transactions or matters addressed
herein. You should always seek advice
from independent tax advisors regarding
the same. [See I RS Ci rcular 230.]
© 2014 Integrity Marketing Solutions
Moulton Law Offices PS
Our firm is dedicated to providing you with quality estate planning
resources, so you can become familiar with all of the existing options.
When you visit or call our office, we want you to feel comfortable
discussing such an important issue concerning both you and your
family. We want to arm you with the information you need to make an
informed decision about your family’s future.
Rial Moulton
1220 N Mullan Road
Spokane, WA 99206
Tel: 509-328-2150
Fax: 509-324-9098
http://www.moultonlaw.com
http://blog.moultonlaw.com
If you have a well-drafted estate plan in place, you’ll ensure that your
estate passes to whom you want, when you want, and is carried out in
the manner you’ve chosen. You can rest assured that your family won’t
have to endure the public process and costly matter of probate. The
government won’t be able to take what you’ve spent a lifetime building.
But you need to be aware of the many options that exist in estate
planning—and you must choose your attorney wisely.
That is why Moulton Law Offices offers this wealth of free information
and free seminars. Read our Estate Planning articles, and if you’re in
the area, join us at an Estate Planning seminar. We want you to feel
confident about the choices you make—let us be your guide on the path
toward preserving your family’s future