Plan Your Estate Early to Avoid the Pitfalls of Deathbed Planning

Although “it’s better late than never” may apply to planning one’s estate, planning early will cause one to avoid the dangers of deathbed planning. Acting hastily in the midst of a terminal illness can be hazardous to one’s estate planning well-being.

One hazard in deathbed planning is the misconception that less is more. If an individual is married, for example, estate taxes may be minimized if assets are evenly divided. If the first spouse to die makes deathbed transfers to the other spouse, the result could be that the exemption from estate tax in the first estate is not fully utilized, resulting in much higher tax in the estate of the second spouse to die.

Another hazard in deathbed transfers is the loss of a step-up in basis for an asset. Assets that are owned by the decedent are afforded a step-up in basis to the date of death value. Assets transferred prior to death retain their original cost basis for the donee, possibly resulting in more capital gains tax when the asset is sold or disposed of. Transfers made within three years of death are considered, for Ohio estate tax purposes, to be gifts made in contemplation of death and are brought back into the estate. Although this presumption can be rebutted by evidence that a pattern of gift making was previously established, it is the burden of the estate representative to rebut this presumption.

Deathbed planning often includes hastily prepared documents, including forms not drafted by estate planning attorneys.

A common misconception is that a financial power of attorney is a simple document that can be downloaded from the internet. This document is one of the most powerful documents a person can execute, and much consideration should be given to its preparation. For example, the power of attorney may authorize an attorney-in-fact to fund a trust, make gifts or execute beneficiary designation forms. Deathbed planning that includes a do-it –yourself power of attorney may be missing these important provisions.

Although planning late may be better than not planning at all, planning ahead will ensure that the maximum amount of your estate is passed down to your beneficiaries. The estate planning attorneys at Stark and Knoll are prepared to advise you in the drafting, reviewing and updating of your estate plan. To create or update your Ohio Estate Plan, please call us at 330-376-3300 or e-mail info@stark-knoll.com