Some Common Mistakes

Physician's Money Digest, September15 2003, Volume 10, Issue 17

The biggest mistake when it comesto estate planning is not planningat all. According to the Schwabsurvey, the number 2 reason given bypeople for not establishing an estate planis that their estate is too small. But contraryto popular belief, says CarrieSchwab Pomerantz, president of theCharles Schwab Corporation Foundation,most people today need an estate plan.

"Typically, the older you get, the moreassets you acquire and the more complicatedyour family structure becomes,"Pomerantz explains. "By not preparing anestate plan, some of your most personaldecisions concerning where you wantyour assets to go could be determined byothers." In addition, your beneficiariescould find themselves faced with legalobstacles and unwelcome tax burdens—not to mention family strife.

A common estate planning error,Malovany says, is having assets held jointly,and not necessarily by both spouses.For example, let's say that you have anelderly parent who has about $500,000 intheir estate. So that you can help controlthese assets and have signing authorityon them, you title everything as joint tenantswith rights of survivorship. In thiscase, if your parent passes away, you'llinherit the $500,000.

Continuing with this example, let's saythat you have 2 siblings and you want tosign a portion of the inheritance over tothem. That becomes a taxable gift fromyou to your siblings. "What you'd want isfor that gift to come directly from theparent," Malovany explains. "And becauseit's under $1 million, it's entirelyfree of estate taxes."

Another common oversight, Plainesays, is not having a power of attorney forproperty management. Should you becomedisabled, this allows the person youdesignate to handle property-relateddecisions on your behalf. They can evendivide assets and fund a trust. "Mostimportantly, it can help you avoid goingto court for guardianship, which is a vastwaste of money on legal fees and apainful procedure," Plaine explains.

The bottom line:

In addition, Plaine suggests that everyyoung physician with a young familyshould have an irrevocable life insurancetrust. The trust purchases life insurancefor the benefit of the physician's spouseand children. As long asthe life insurance documents are draftedproperly, the insurance is not subject toestate tax on the physician's death or thesurviving spouse's death.