It’s easy to overlook the mistakes that could cause issues for your kids upon your death. Some of the money mistakes you make with accounts & property may boomerang right onto your kids later. Here are twelve money mistakes to avoid, as per reputable government & other financial resources listed at the end. Which of these would be the biggest mess for you when you’re no longer here?
Just remember, we’re not financial advisors & you should always consult a certified financial expert before making any decisions.
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Outdated beneficiary forms
Many people forget to update who’s listed on their accounts & leave old names, like an ex-spouse or a deceased relative. This means that they can still legally get the money. The bank or insurance company won’t check who you “meant” to leave it to & they’ll just go by the form on file. So, you could end up giving money to people you really don’t want to.
Naming your estate (or no one) on IRAs/401(k)s
It’s also a problem when a retirement account doesn’t have a proper person listed. When that happens, the funds usually get lumped into the estate, which could lead to probate court & stricter payout rules. Your kids won’t be able to stretch withdrawals. Instead, they may have to take the whole balance in just a few years & pay more in taxes.
Gifting the house during life
A lot of parents sign over their home early because they think it’ll make things easier during retirement. That’s not true. Their kids inherit the original purchase price, not today’s value, meaning that if they decide to sell later, they’ll be stuck with a giant capital-gains tax bill. It never needed to happen, as long as the kids had inherited the home instead.
Letting property taxes fall behind
Unpaid property taxes don’t simply vanish & stick to the property itself. As a result, kids who inherit the house can’t sell it or even legally transfer it without paying off every dime first. In some cases, counties may be able to auction the place because you didn’t clear the balance beforehand. It’s really that serious.
Omitting a POD beneficiary
Another big issue is having a bank account without a payable-on-death (POD) designation, as this freezes the funds in probate. Worst of all, funerals aren’t free. The average burial runs around $8,300 & cremation about $6,280. Kids without that POD setup will usually have to pay upfront, perhaps even wait months to be reimbursed.
Adding a child as a joint owner
Sure, putting a child on your bank account seems like a shortcut. But there’s a catch. Unfortunately, your kid’s creditors could come after that money whenever your kid has debts or gets sued. Becoming a joint owner also means they have equal rights to withdraw it at any time. Is that really what you want?
Ignoring tax debts risks
The IRS files liens on unpaid taxes. These attach to all property you own. As such, your heirs can’t sell a house or car (anything at all that’s tied to that debt) until the lien is settled. This seriously drags out estate transfers & forces kids to negotiate with the IRS. Pay your taxes.
Creating a trust but not funding it
It does feel good to sign a living trust but nothing actually changes until you move assets into it. You have to retitle the house deed & reassign accounts. Don’t forget about updating property paperwork. Without taking these steps, everything still goes through probate, so your kids will be left handling the process you thought you’d already taken care of.
Skipping a durable financial power of attorney
Unfortunately, nobody predicts that they’ll lose the ability to manage bills or accounts. That’s where a durable power of attorney comes in handy. However, not having one puts your kids in a difficult situation, as they may have to petition the court or sit through hearings. They’ll also have to keep up with reporting rules to simply pay your utilities or file taxes.
Ignoring filial responsibility laws
Not everyone realizes that some states allow nursing homes or care providers to chase adult children for unpaid parental bills. In the places where these filial responsibility laws exist, your children can end up paying a lot for your care. One Pennsylvania case involved a son being held responsible for nearly $100,000 in costs.
Overlooking state inheritance taxes
Federal estate taxes get all the attention, yet several states have inheritance taxes to pay, too. Pennsylvania charges children 4.5% on what they receive & the percentage is higher for siblings or non-family. That’s not all. New Jersey has a lien that can hang around for years, while Nebraska has its own version.
Forgetting to wind down a small business
The IRS doesn’t really care when you pass away while still owning a business. Someone has to send in the last tax returns & cancel payroll, as well as formally close the company ID number. As such, any outstanding employment taxes could lead to penalties that may equal the full amount withheld. Your kids may also have to hire accountants to deal with this. Have a proper plan in place for all this.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.
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