9 Estate Transfer Issues to Avoid

As Benjamin Franklin famously quipped, nothing is certain in this world except death and taxes. While no one likes to think about their own mortality, developing an estate plan can be a loving way to continue caring for your family even after you are gone. The basics of an estate plan could include a will, a living trust and power of attorney.

Estate planning is important for several reasons. Establishing your estate plans can help ensure that your wishes are carried out, and it can help protect the people you love by naming guardians for your children and protecting assets for your family and loved ones, says Danielle L. Schultz, certified financial planner and principal of Haven Financial Solutions in Evanston, Illinois.

Here are nine common pitfalls you can easily avoid when it comes to planning your estate.

Make sure your will states your intentions correctly. Read the will after you get it, Schultz says.

"Make sure it says what you intended it to say. If you don't understand something, ask," she says. "Check that all beneficiaries are correct and each beneficiary is getting the share you intended. Particularly in the case of grandchildren, make sure everyone who should be included is there."

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Consider that there may be children yet unborn.

"If you are planning to leave something to all grandchildren, some may come along quite late in life, and make sure the wording covers your wishes in those circumstances," Schultz says.

Understand how your home and property is titled. There are several common ways to hold title to your home. This could include solely in your name, joint tenancy with right of survivorship or tenants in common.

"If you don't know who has the right to pass it on, you can't write a valid estate plan for it," Schultz says. "Be certain the attorney has looked up the title."

Does the estate tax apply in your situation? Unless your family counts within the wealthiest 0.2 percent of Americans, the estate tax probably won't affect you. The federal estate tax is a type of transfer levy on property, including cash, real estate and stock, and is paid by the estate. This applies to estates with combined gross assets exceeding $5,450,000 in 2016, and $5,490,000 in 2017, according to the IRS.

President Donald Trump has said he plans to repeal the estate tax and replace it with a capital gains tax on inherited assets. Who would this impact? Trump's capital gains tax would only apply to estates more than $10 million in assets, says Greg Stevens, principal and senior wealth advisor at Cabot Wealth Management in Salem, Massachusetts.

"This tax play would greatly benefit individuals with large estates, specifically those with illiquid assets that are hard to value or liquidate," Stevens says. "Under the current plan, an individual with a $20 million estate tied up on real estate could represent a tax nightmare for the beneficiary unless there is sufficient liquidity to fund the tax bill. Trump's plan would allow 100 percent of the assets to move to the beneficiary, and no tax would be due unless the beneficiary sold the real estate. They could, in theory, continue to hold the asset and collect income indefinitely or until an interested buyer came along."

An inheritance tax is different from an estate tax. The inheritance tax occurs at the state level and is paid by the person inheriting the assets, says John Piershale, certified financial planner and wealth advisor at Piershale Financial Group in Crystal Lake, Illinois.

In 2016, six states had an inheritance tax and spouses are exempt, according to the Tax Foundation.

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Don't forget to name your beneficiaries. Just because you have a will, your estate plan is not complete.

"A common mistake we see is not having beneficiaries named on retirement accounts like IRAs and 401(k) plans," Piershale says. "Upon the owner's death, this can cause the retirement plan to be fully taxed, experience early penalties and possibly even go through probate. It's like a perfect storm of taxes. There is an easy solution: Make sure you have named beneficiaries on the plans."

Heirs can consider establishing an inherited IRA. A beneficiary of an IRA has the option to distribute the funds to themselves and pay taxes or move the funds into an inherited IRA, Stevens says.

"This arrangement allows the asset to retain its tax-deferred growth and still allows the beneficiary to take distributions without incurring the standard early withdrawal penalty of 10 percent," Stevens says. "The IRS requires the new owner to begin making minimum distributions based on their life expectancy."

There is an exception. "Spouses have the option to absorb their deceased partner's IRA into their own," Stevens says. "This is an important distinction since there would be no RMD requirement if the surviving spouse is under age 70 1/2."

Complete a transfer-on-death registration for your accounts. If you have nonretirement investments, such as any bank, brokerage or certificate of deposit, consider adding a TOD form to name a beneficiary.

"This means that the beneficiary can get the asset without the hassle, costs and time associated with probate," Stevens says.

If you fail to do this, the assets will become part of the estate after death.

"An account registered to an individual, without a TOD, will go through probate. Most people don't understand what probate is, they assume that their will is sufficient," Stevens says.

That means during probate, those assets could be used to pay any outstanding estate debts, including mortgage, credit card or car loans. A TOD form can protect those assets from creditors and funnel them directly to your designated beneficiary.

Review your estate plan over time. Plans made in the past do not always work in the future, says Jason D. Smolen, founding principal and estate planning attorney at SmolenPlevy in Vienna, Virginia. He says regular meetings with your attorneys and financial advisor are important.

"They must be reviewed, and planning is the really important part of the process," he says. "No one likes to do it, but you spend so much time earning your money you should do what it takes to keep it."

Submit a final tax return. Even after you are deceased, the tax man will still come calling one last time. The estate executor or survivor will be required to compile the necessary information and file the same form that would have been used if the taxpayer were still alive, with the word "deceased" after the taxpayer's name.

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The filing deadline is April 15 of the year following the taxpayer's death.

Kira Brecht is a regular contributor to US News & World Report. She has two decades of experience as a financial journalist and market analyst, writing about the stock and commodity markets, investing and active trader strategies, the economy and the Fed. She empowers individual traders and investors with the skills and knowledge needed to achieve their financial goals. She has passed Level 1 and 2 of the Market Technician's Association (MTA) Chartered Market Technician (CMT) exam. She was managing editor at SFO (Stock, Futures & Options) Magazine for 10 years, creating digital magazine, newsletter and online content aimed at educating the individual investor. She contributes to a variety of publications including TD Ameritrade's Ticker Tape, Dow Jones/Wall Street Journal newswires and Kitco, a precious metals news service. Follow her on Twitter @KiraBrecht. Connect with her on LinkedIn.