Most people I know are not rich, but they are not poor, either.  Instead, they are somewhere in the middle – not rich, not poor, but decently comfortable – which is probably a result of having such a large middle class in America.  I count myself as part of the middle class, and chances are that you are, too.

As such, we don’t have the same worries as the three billionaires I have met.  They have a whole different set of problems, like how to preserve their money and pass it on to their kids without the government taking a huge cut of their fortunes.  Those of us of modest – let’s call it “normal” – wealth are not really concerned about what happens to the assets we have above $12,920,000 for an individual and $24,840,000, the current federal estate tax limits.  I don’t have anywhere near $12 Million, so estate taxes are not really a concern for me, but other types of taxes can be a hidden problem.

Estate taxes don’t really affect a lot of us who have a “normal” amount of assets – like a house, IRA, 401(k), maybe some life insurance, savings, and perhaps an investment account – but we all need to worry about income taxes.  We also need to be concerned about specifying where our decently moderate assets will go when we pass away.  And, we definitely need to watch out for thinking everyone knows or understands what we want to have happen.  Not paying attention to these things can create problems for those of us with modest wealth, so we need to watch out for mistakes we can make with our “normal” assets in estate planning.

 

Watch Out for Taxes

Even though you may have accumulated assets under the $12 Million estate tax limit, you are not fully free from all types of taxes.  Your estate may not be subject to estate tax, but if you are someone who saved money for retirement in an IRA or 401(k) for your entire life, you do need to worry about income taxes.  Many people forget that IRAs and 401(k)s are taxable income when funds are paid out from these types of accounts.  The payouts may be to you while you are alive, or to your beneficiaries, or heirs, after you have passed away.  You will want to consider what the tax consequences of such payouts will be to your beneficiaries, or heirs.

The SECURE act changed the rules on payouts from IRAs and 401(k)s, and shortened the payout times for IRAs or 401(k)s to beneficiaries or heirs.  There may not be a lot of legal planning options for these types of accounts, but my financial planner friends tell me that there are some financial planning options to re-position these types of assets.  As an estate planning attorney, I may need to refer you to someone else to help explore what to do with IRA and 401(k) assets, but I do always want to make sure you are aware of the need to plan for these types of assets.

 

Don’t Assume What Will Happen to Your Assets

You may think you know exactly what will happen to your assets when you die.  Many people I talk to think that they know what will happen if they die prior to their spouse – that everything will go to their surviving spouse.  Under the default rules, this is the case if you have only been married once and all of your kids are also the kids of your spouse.

If you are on your second marriage, or one spouse has children from a different relationship, the default rules quickly get complicated concerning who gets what assets, and not everything just goes to your spouse.  You don’t want to make the mistake of assuming you know where everything will go just because it makes sense to you, or because that is what you want to have happen.

Instead, you are better served by spelling out what will happen, and setting up your estate plan to ensure your wishes are carried out according to your own desires, and not left to the default rule of what happens when you die without a will or trust.  You can modify the default rules to make sure what you want to have happen to your assets will be done after you pass away.

 

You Can’t Assume Everyone Knows Your Wishes

You may think that you have been pretty clear to everyone about what you want to have happen with your assets once you pass away, but that is not always the case.  I have had several instances where I am talking to a family, and several of the children are certain that their parents promised them a certain item out of an estate.  Sometimes these promises were made at different times, so the parents likely changed their mind, or forgot, to whom they had promised the item.  I was glad we met prior to the parents’ passing.   That allowed us to clear up who should get the items and not have confused children, or conflicting promises, after the parents’ passed on.

The best way to avoid assuming everyone knows your wishes is to have a written estate plan that writes everything down as completely and as clearly as possible.  You don’t want to assume that everyone will recall what you told them prior to your death, or that nobody would try to take advantage of a situation after you have passed on.  And, no matter what you intend or want to have happen, if you don’t have a written estate plan, then the default rules – the Colorado Intestate Statute – for what happens when you die without a will take over and dictate who gets what.  It is far superior for you to write down your wishes in a proper estate plan, so that what you want to have happen takes place after you are gone.

 

Ensure Your Wishes Are Honored by Setting Up A Proper Estate Plan

You can express your wishes clearly and completely in an estate plan using a will or trust, or other document that correctly and legally describes how your assets should be distributed.  Working with an experienced estate planning attorney can help this process succeed.  The estate planning attorney will help you express your wishes clearly in the proper documents and can help you know what the proper documents are.  You can ensure your wishes are carried out, and that you are not subject to the default rules, or subject to taxes you did not consider.  If you would like to avoid making the mistakes above, you can make an appointment to talk to an estate planning attorney below.