Estate Planning Mouse Traps: The Most Common Mistakes Made In Estate Planning

by Timothy Stallings

Everyone knows there will come a time when they will need to cross the proverbially Estate Planning bridge. A huge informational gap exists which is reflected by the fact that 65% of the country has done NO estate planning. This results in many people falling into some very common Estate Planning “Mouse Traps”. These traps can result in lost tax savings, exposing your estate to unnecessary risks and over paying for probate fees. This article will illustrate how getting the right information and proper attorney for the job is 99.9% of the battle.

The Last Will & Testament Real Price Tag

Mouse Trap: The unfortunate truth is that many general practitioners will advise their clients that they only need a simple will versus messing around with a trust. These attorneys explain that trusts are too complicated for your estate size and quote the differing costs of implementing each – a simple will is around $500 while a comprehensive trust package is around $2K or $3K. Sounds like a no-brainer, right? However, this simple quote fails to include (i) the lost Ohio estate tax savings (for estates over $500K, it could be over $25K to Uncle Sam) and (ii) THE FEES AN ATTORNEY WILL CHARGE TO PROBATE YOUR ESTATE (RANGING FROM 3-7% OF THE VALUE OF ALL OF YOUR ASSETS). Using the same $500K estate example described above, the probate fees could be around $35K or more! This means that after taking into consideration the lost Ohio estate tax savings and additional probate fees, the simple will would really cost your estate a whopping $60,500. Did we mention the trust cost for the same scenario would remain around $2K or $3K (no OH taxes would be due in 2011 nor would there be any probate fees because trusts are not subject to the probate process) plus any tax filing expenses and trust administration (typically around $1K to $2K) for a grand total of around $5,000.

Many general practitioners don’t advocate trusts because (i) they don’t have the expertise and don’t understand how trusts actually function and (ii) using a trust versus a simple will would lose out on the enormous fees associated with probating their estate. Some attorneys have even been known to keep your will at their office for “safe keeping”. While this “safe-keeping” ensures that your will is kept safe, it also guarantees such attorney gets the first crack at the probate fees discussed above when your descendants come to pick up your will.

Solution: Search out multiple opinions regarding how your estate plan should be assembled. Go talk to a CPA, financial planner, insurance agent and an estate planning attorney. Make sure to get second and third opinions on the pros and cons of using a simple will versus a trust instrument because each situation and estate is different. Also, make sure you speak with attorneys who specialize in estate planning and who actually DO estate planning VERSUS solely estate administration (probate work).

The General Practitioner

Mouse Trap: We understand that many people have a jack-of-all-trades attorney who has serviced the majority of their needs throughout their lifetime (real estate, contracts, business formations, etc.). It makes sense that this same attorney typically is the first person on the list when it comes time to put their estate plan together. There lies the trap – this attorney may be a jack-of-all-trades but is an expert in NONE. Due to the complexity of estate planning, a common result of using a general practitioner is that tax savings are lost, ENORMOUS probate costs and your asset are unprotected from nursing home costs.

Solution: Go out and find an attorney who specializes in estate planning and/or elder law. The Tax & Medicaid fields are extremely complicated, not to mention changing every year, so you need an attorney who devotes the majority of their practice to such matters to ensure your estate plan includes asset protection, probate avoidance and tax savings.

Estate Planning: Only The Rich Shall Apply

Mouse Trap: Most people think estate planning and trusts are only for RICH people. However, what many of these same people don’t realize is that Effective Estate Planning provides both financial AND health benefits regardless of the value of your estate. Not to mention, in the State of Ohio, estate tax kicks in if your estate is valued over $338,333 so it certainly doesn’t take a multi-millionaire to utilize many of the advantageous tax planning devices of Estate Planning to DISINHERIT THE IRS.

Solution: Every adult over the age of 18 should talk to an attorney about a living will, healthcare power of attorney, financial power of attorney and simple will. These documents are simple legal documents and economical to get put into place. Also, talk to a CPA and estate planning attorney about the size of your estate and the amount of tax and probate savings that can be achieved through proper planning.

Gifting: Dos & Don’ts

Mouse Trap: Many people want to safeguard their assets (particularly their residence) from (1) future estate taxes and (2) possible nursing home costs. In an effort to achieve this goal, they gift such assets to their children during their lifetime. There are many sneaky traps out there in connection with lifetime gifting that get overlooked by most people (and attorneys). First, you could trigger a Federal Gift Tax depending on the amount of such gift and the total amount of your gifts made during your lifetime. Next, you could trigger a Capital Gains Tax by giving the recipient of the gift YOUR cost basis for such asset (as opposed to the fair market value at the time of the gift, if the gift was transferred at death). Finally, you can create unnecessary risks when you transfer an asset outright to another person if you still rely on access to the asset during your lifetime (i.e. your residence). For example, mom and dad transfer their home to a child in an attempt to avoid possible future nursing home costs. If that same child later files for bankruptcy, is sued, gets a divorce, etc., then the child’s creditors could then foreclose on the house, since it is in the child’s name. Now mom and dad have to look for a new place to the live.

Solution: ALWAYS, ALWAYS, ALWAYS, talk to an estate planning attorney AND a CPA before making any transfers during your lifetime. There are many tools, gifting strategies and trusts instruments that can be used to easily bypass the traps highlighted above.

You have worked an entire lifetime building a legacy; make certain the right people are involved to make sure the maximum amount passes to your family in accordance with your wishes. By taking the time to plan today, you can guarantee that your assets and legacy are protected and available to pass to your loved ones and will not fall subject to one of the Mouse Traps discussed above. For more information about any of the information discussed, please attend one of our many FREE events or contact us to schedule a FREE consultation at one of our office locations – Dublin, Ohio (Columbus area), Atlanta, Georgia and Chicago, Illinois.

“A Lifetime Accumulating Wealth, An Afternoon Preserving It”


About the Author


Gregory J. Aler

Greg is one of the founding members of AlerStallings LLC and his practice is focused on estate planning and elder law. He prides himself on providing big firm experience at boutique firm prices.