Are you making a common estate planning mistake?
There’s a common estate planning mistake that some people make which can cost their children or other beneficiaries money.
Estate planning for children can differ depending on the age of the children involved and whether the children have special needs. Very often, when planning for minor children, trusts are used. It’s common for parents to designate different ages at which they would like distributions to their beneficiary children to be made. The pay-out over time strategy is also employed for adult children who may be spendthrifts in an effort to prevent them from accessing and blowing their inheritance before they’re financially mature.
But in other cases, parents leave adult children bequests in their wills instead of trusts, often with no restrictions on distribution. Depending on how the estate plan is set up, a common mistake that can cost the children money can occur if the parents are also leaving money to a charity and have certain types of IRAs.
A common scenario may involve a married couple living their estate to each other and then after the death of the first spouse, the survivor leaves their estate to the children with a designation to a charity as well. Assuming the estate consists of a bank account, a home, and an IRA, there may be an opportunity to accomplish the testator’s wishes while saving the children money in taxes.
Depending on the kind of IRA, there may be tax savings to the children beneficiaries by naming the charitable organization--instead of the children--as the beneficiary of all or part of the IRA rather than as a beneficiary under the will. This is because charities do not pay tax on most IRA distributions, but individuals do. It’s wise to hire a skilled estate planning attorney with a tax background to advise you of the best course of action in your particular circumstances.
If you need assistance with an initial estate plan or would like to modify an existing one, The Law Office of Thomas J. Hansen can help you.
Contact us today to schedule a consultation.
From our office in Park Ridge, we help clients in Cook County, Illinois as well as Niles, Des Plaines, Glenview, Norridge, and Rosemont.