3 Dangerous Estate Planning Techniques When it Comes to Your Home @LegacyAssurancPlan

Legacy Assurance Plan: Fans of Saturday Night Live during the early 1990s will likely recall one of the show's most famous parody commercials, "Bad Idea Jeans." The crux of the joke in this sketch is that each idea the actors espoused was blatantly, obviously bad ... yet they discussed them as if they were perfectly common-sensical notions. The difference between good and bad estate planning techniques is often the exact opposite of a "Bad Idea Jeans" commercial -- things that are potentially very dangerous are often far from obviously bad; rather, they may often appear to make perfect sense. With that in mind, here is a list of 3 ill-advised yet common estate planning techniques related to your home that may seem like good ideas, but are really very bad ones.

(1) Adding your children to your home's deed. One method some people use to avoid probate is simply adding to the property's deed a child or other loved one to whom they would have left the home in their will or trust. While this can effectively avoid the need to probate that asset upon your death, this benefit will come at a steep price. First, it exposes your home to any potential liability that may cross your child's path. Whether it's a divorce, a failed business or an injury lawsuit, any court judgment that is entered against your child could place your home in jeopardy of being lost to that creditor. Even if your child is never sued, this technique carries certain tax consequences. Adding your child to the deed is actually a taxable gift in the eyes of the IRS and may require you to file a gift tax return and/or pay gift taxes. Furthermore, this technique may have very damaging capital gain tax consequences if your child later decides to sell the property.    

(2) Pocket deeds. This a technique where you, as the owner, execute a deed transferring your home to the person you want to receive it on your death. Instead of recording it, you simply store the deed someplace secure and, when you die, your loved one records the deed and takes possession of the property without the need for a probate administration. Like adding children to a deed, this can successfully avoid probate but carries numerous potential dangers. One is possible loss of control. The person to whom you deeded the property is under no legal obligation to wait under your death to record the deed. Legally, she could record the deed, take possession of the property and demand that you leave immediately... and be 100% within her rights. Also, the use of pocket deeds may increase the risks for other future problems, like a cloud on the title of the property, which may cause problems with obtaining title insurance. Furthermore, this method can cause harm in terms of capital gain taxes. For calculating this tax, the pocket deed will lead to your loved one having a smaller "basis" in the home, meaning that her capital gain tax obligation will be higher if she sells it.

(3) Transfer-on-death deeds. Transfer-on-death (TOD) deeds are not universally bad ideas. There are several situations where they can serve an essential role in an estate plan. In some other situations, though, they have the potential to be problematic. Say, for example, that you have several children and that your plan goals dictate that all of your children take an equal portion of your wealth, including your home. In this scenario, a TOD deed has the potential to generate more headaches than benefit. If you name all of your children as co-beneficiaries on your home's TOD deed then, once you die, all of them must agree in order to act. All of them must agree on a realtor who will sell the property. All of them must agree on the sale price. All of them should chip in equally to pay for the home's upkeep until it sells. Even if all of your children are agreeable when it comes to decisions about the home, securing consensus on all of these decisions can be a logistical hassle. In this case, placing the home in a trust where decisions are managed by a trustee you name might make more sense and save your children time and stress.

Legacy Assurance Plan (Summary): Estate planning, like any form of planning, has a wide array of tools and techniques that can be used. Some tools can be very helpful in some circumstances, and very harmful if used in the wrong situations. Other techniques are almost always very bad ideas that can have very dangerous consequences. For many people, the centerpiece of their estate is their home. In order to make sure that your plan accomplishes your true goals regarding your home and does so with the least amount of stress upon you and your loved ones, it is important to make sure that your plan avoids the potential pitfalls presented by using tools that are "bad ideas."

Legacy Assurance Plan - Estate Planning for Your Treasured Collectibles

Legacy Assurance Plan - In 2012, the New York Times published an article that mentioned a Georgia woman named Sandy Paschal and her collection of "Department 56" holiday villages. While the name "Department 56" may conjure to mind your mother or grandmother's collection of Snow Village pieces she dusts off and displays every year at Christmas time, Paschal's menagerie was something much more. It numbered thousands of pieces and had an appraised value in excess of $100,000. Many people today possess collections, ranging from coins to baseball cards to comic books to model trains to vintage dolls. Whether your collection has a large monetary value like Paschal's or holds much more worth in terms of sentimental value than dollar value, you probably care about what happens to your collection after you die. Creating an estate plan and including your collection in your plan is a great way to help ensure your goals for your collection are met.

As a starting point, it may help to know how much your collection is worth. Given that some individual stamps, coins, comic books, baseball cards and "Star Wars" figurines are worth thousands of dollars, your collection, especially if you've had it a long time and taken great care of your pieces, could hold more monetary value than you'd think. This is important for multiple reasons. For example, if you have a coin collection that turns out to be worth $25,000, and you have a specific loved one you wish to receive it, you may want to factor that $25,000 figure in when you decide how much to leave that person (and your other loved ones.) Also, if you consider giving that collection to your preferred recipient during your lifetime, there are tax implications of doing this that you should take into consideration before you transfer the collection's ownership.

Regardless of whether your collection is worth $100 or $100,000, you likely cherish it very much and want it to pass to someone who will enjoy it as much as you have. You may have a child whom you love and trust and definitely desire to include in the distribution of your wealth, but whom you anticipate would take you beloved collection and immediately put it on ebay, donate it to a thrift store or simply unload everything in a yard sale. There are ways to plan to avoid that outcome. One way is to sell the collection yourself. By selling the collection in your lifetime, you control the way in which the collection is offered for sale, and vastly increase the odds that the person who receives the collection is a like-minded collector who will appreciate the collection for more than just its dollar figure. Similarly, giving your collection away during your lifetime also allows you to assert some greater control over who receives your collection.

If you decide to hold your collection until your death, it is very important that you make sure your estate planning documents are sufficiently specific so that your loved ones know how how to handle your collection. Things like china or collectible figures generally do not have ownership documents and, in the abstract, would be considered to be just another part of your household effects. So, if you don't want your 19th Century china collection and your Department 56 villages lumped in with the dishes and the knick knacks you bought at Target last year, your plan documents need to say so in clear detail. If you have an estate plan that includes a revocable living trust, your trust has a place (often labelled as "Schedule A") that can help you in doing this. You can specifically list things like your Cabbage Patch dolls or your collection of Lionel trains or your vintage Louis Vuitton handbags as assets that you are expressly funding into your trust using your Schedule A. Then, in the section of your trust that spells out the details of the distribution of your trust's assets, you can state exactly what you want to happen to each of those collectibles.

Summary: One of the great benefits of estate planning is control. If you are someone who possesses a cherished collection, that control may be particularly important to you. Through proper planning, you can make sure that the person who owns your collection after you is someone who will appreciate it as much as you have. If you have an estate plan with a revocable living trust, you can control the distribution of your collectibles by funding them into your trust using Schedule A and then providing detailed distribution instructions in the asset distribution section of your trust.