Even if you’re young and have only been with Uncle Sam for a short time, odds are you already have an estate. If you have been around for awhile, it may be a sizable one. Maybe worth millions because of property, insurance and your growing Thrift Savings Plan. That’s the good news.
The not so good news is that you may have an adult child with a drug or drinking problem. Maybe your son or daughter is married to a loser who doesn’t deserve to have control over money you may leave behind. How about an ex-spouse? Or two? Or more? How’s that gonna work out when you are no longer in control or here?
Whatever the reason, whether your life is a bed of roses or a getting-worse-nightmare, there are things you can do now to insure what you leave will go to who you want. And when. And in what portion or portions.
Tom O’Rourke is a Washington area attorney who specialized in tax and estate law. Many of his clients are current or former feds. Several are TSP millionaires. Others are on track to become one soon — fingers crossed! He’s also a former IRS lawyer. Been there, done that!
Tom is going to be my guest today on Your Turn at 10 a.m. ET. You can listen live streaming here or on the radio at 1500 AM in the Washington D.C. area. The show will also be archived on our website so you can listen again, listen later or recommend it to a fed friend. If you have questions for Tom, shoot them to me before air-time. Meantime, he’s written this outline on how to avoid the most common estate plan errors. Starting with the all-important but often overlooked or outdated beneficiary notifications. Here’s his 8-point guide:
Overlooking beneficiary designations, or failing to keep beneficiary designations up to date. For federal employees virtually all of your job related benefits (annuity, TSP, accumulated salary, life insurance) are governed by beneficiary designations. These beneficiary designations always supersede the terms of any will or trust.
“Selling” property for a nominal amount (i.e. selling your home to your child for $1). This can cause a variety of estate, gift, and income tax issues.
Naming specific investments in your will or trust. How does the sale or disposition of the named asset before your death affect any specific bequests you may have made?
Not thinking through the practicalities of leaving real estate to your children in equal shares.
Making a specific bequest to a minor. Until a person become an adult, he/she cannot legally own property. Who is going to manage this bequest for the child? Most likely, it will be the child’s guardian – who could be your former spouse? Is that what you intended.
Failing to plan for the death of a person named as a beneficiary in your estate plan. If you leave a bequest to a beneficiary and that person dies what happens to the bequest. Does it pass to the beneficiary’s children, or does it revert to the estate?
Failing to include a residuary clause in a will or a trust. A residuary clause disposes of all assets not specifically mentioned in a will or a trust. For example, Mary writes a will that makes specific gifts of $500,000. What happens it f the value of her assets is more or less than $500,000? A residuary clause should address this issue.
Failing to deal with unexpected contingencies. What happens if a primary beneficiary (often an adult child) develops a substance abuse problem or divorces his/her spouse?
Developing an effective estate plan requires a consideration of the “what ifs” and hopefully can avoid problems that may occur after your death.
In 1953, the United States abandoned a confusing two-year old plan to name storms by a phonetic alphabet (Able, Baker, Charlie) when a new, international phonetic alphabet was introduced. That year, the United States began using female names for storms. The practice of naming hurricanes solely after women came to an end in 1978 when men’s and women’s names were included in the Eastern North Pacific storm lists. In 1979, male and female names were included in lists for the Atlantic and Gulf of Mexico.