Estate Planning Tips: Property Ownership & Tax Considerations

pencil on estate planning worksheet

When you discuss your estate plan with an attorney he or she will likely cover a broad array of topics and related issues. We covered the differences between wills and trusts in this post, and in this week’s post we want to discuss two related topics: Why joint ownership and beneficiary designations cannot be considered estate plans and tax considerations for your estate plan.

Joint Ownership & Beneficiary Designations

Some people still use ownership tools such as joint ownership and beneficiary designations as estate plans. Joint ownership is particularly common between couples or between a surviving parent and an only child. Beneficiary designations, even on vehicles and real estate, are also popular due to their ease of use.

However, these methods cannot be considered estate plans. They are simply ways of owning property.

Some people combine their instructions in a Will with joint ownership, thinking that the co-owner will simply have quicker access to carry out the instructions in the Will. Unfortunately, the joint ownership just undermines the estate plan in the Will and can actually do more harm than good. Joint ownership, for instance, may provide a child access to the parent’s bank account for convenience, but it also means that if the child experiences financial difficulty, such as divorce, lawsuit, or bankruptcy, the parent’s account is at risk as well.

A beneficiary designation may divide the asset equally between two children, but if one of those children dies before the parent, the designation may provide no protection for that deceased child’s children.

For these reasons, ownership methods of estate planning have narrow focus and should only be used in limited situations.

Tax Considerations

Tax planning should always include estate planning, but estate planning does not always include tax planning.

There are several kinds of taxes; income, capital gain, and estate taxes. Most people will only be concerned about income taxes and generally those are only an issue for qualified retirement plans, such as IRA and 401(k) accounts.

Estate taxes are the tax that the Federal government, and some states, charge on the total amount of the estate left at your death after most of your expenses have been paid. Some people, even professionals, confuse the need for estate tax planning with the need for estate planning. Tax planning is designed to reduce or eliminate your estate tax liability, whereas estate planning is designed to direct your assets and provide authority to the person you have chosen to act on your behalf.

The size of the estate subject to paying estate taxes has fluctuated over the last several years, but the basic rule of thumb right now is if your estate is less than $5,000,000.00 you may not need tax planning, but you still need estate planning!

When you are ready to plan your estate, you should seek the advice of a qualified estate planning attorney. You can learn more about our Estate Planning Attorneys here.

*This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.

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