Don't confuse different tax liabilities in your estate plan

Our law firm has helped many clients create customized plans for the transfer of assets upon their passing. Our experience can help clients avoid many common mistakes.

For starters, one of the most common estate planning mistakes is simply not having one. Regardless of the size of one’s estate, a will can help ensure that personal and financial matters are handled gracefully after one’s passing.

Another common mistake concerns jointly owned property. An individual may consider putting an heir’s name on a real estate deed, perhaps thinking that joint ownership would be functionally equivalent to the spousal transfer rule. That would be a mistake.

The spousal transfer rule allows all of an individual’s property to pass to a surviving spouse without creating any new tax obligations during the survivor’s lifetime. Adding a joint owner to a deed, in contrast, creates an immediate ownership interest and is treated as a taxable gift. Anything over $13,000 might be subject to gift tax.

Another misconception is beneficiary designations in policies such as life insurance, payable on death accounts, bank accounts, or certificates of deposit. The named individuals may be able to obtain the assets without going through probate, but the tax implications are less certain. For example, life insurance proceeds may be subject to estate tax unless they were placed in a life insurance trust. If the value of payable on death accounts increased during the previous owner's passing and the time they were transferred to the named beneficiaries, there may be taxes due on that increase, as well.


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