8 ways to leave a mess for your heirs

By Bankrate.com

If you've always hated your kids, your spouse and the rest of your family, it's surprisingly easy to make sure the acrimony and hurt feelings endure long after your funeral.

However, if you actually like your friends and family, avoid these eight mistakes in planning your estate.

1. Staying ignorant about the process

As with most things, but especially with estate planning, when you don't know what you're doing, mistakes practically make themselves.

Lawyers are supposed to look out for your interests, but they're not always successful. "They bury their mistakes," says Ron Christner, an associate professor of finance at Loyola University in New Orleans. "In other words, you have a will made out when you're 40 and you die when you're 80, and they look at your will and say, 'Oh, this is all wrong.' Well, that's 40 years too late to discover that. But that's when you find out that somebody made a mistake."

Of course, the deceased would have to take some responsibility for not updating the will after age 40.

If you don't want to leave a mess for your family, you need to bone up on the subject. Spend at least as much time on it as you would researching a car before buying it, says Denis Clifford, a lawyer and author for Nolo, a publisher of consumer-oriented legal books and software. It's a huge mistake to turn everything over to a lawyer and not get any information about something on which you're going to spend a substantial amount of money, he says.

"Someone should have an idea of what a living trust is before they go ask someone to make one for them. I would say get some information so you're at least an intelligent consumer," says Clifford, the author of "Estate Planning Basics," "Make Your Own Living Trust" and "Nolo's Simple Will Book."

But don't think that scanning a book or two will enable you to do it all yourself. Keep in mind that an estate plan is basically a way to distribute your money after you die, minimizing taxes and fees. Hiring a good estate-planning attorney to do this is highly recommended -- and not that expensive, Christner says.

2. Being clueless about the role of wills

"Where attorneys make money is in probating the will. They might do a simple will for you for $300, but if they probate the will when you die, they get approximately 2% of your assets, depending on state law," says Christner.

Many people think a will acts as a free pass around probate court -- a common misconception.

"A will is simply a letter of instruction appointing someone to be in charge of your estate and specifying how you want your estate to be distributed or divided, but it doesn't avoid probate," says Benjamin Berkley, an attorney specializing in estate planning and administration.

Berkley, an author of two estate-planning books, "My Wishes" and "The Complete Executor's Guidebook," says another misunderstanding people have about wills is thinking they need to be notarized. "Having it notarized invalidates it. It has to be witnessed, not notarized," he says. "It depends on your state: It could be one witness or two witnesses."

Instead of simply writing up a will, experts recommend putting assets into a living trust -- especially if you own real estate.

3. Putting your kid's name on the deed

Adding your kid's name to the title of your house is not a good way to pass the old homestead on to the next generation. Tax implications make it a clunky way to bequeath assets.

And yet "so many people do this to avoid having to set up a revocable living trust," says personal-finance author and TV host Suze Orman. "Your mother or father may say to you, 'Let me put your name on the house with joint tenancy and right of survivorship so that when I die, it's immediately yours.'"

Several problems can emerge when someone puts another's name on a house, Orman says.

"First, it's a gift, and the most you can gift to somebody (without notifying the Internal Revenue Service) is $12,000 a year," she says. "So, if the house is worth $200,000, and they put your name on it as a joint tenant with right of survivorship, they just gave you a $100,000 gift for which they have to do a gift-tax report, which then becomes a matter of public record."

This also means you lose tremendous tax benefits that you would have received had you inherited the house.

"When you inherit property, you get an incredible step up in basis on it," Orman says. "So if you inherit a house and the value of it is worth $500,000 on the day you inherit it, and you then turn around and sell it for that, you don't pay any tax because that's your new cost basis.

"If you get that property as a gift while a parent is alive, you take over your parent's cost basis," Orman says. If the property has appreciated since your parent bought it, you're on the hook for the gains, which will be taxed when you sell it.

If you live in a community-property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, the rules for property ownership are different still.

"You have people who think that you can hold property in joint tenancy, which is not valid in community-property states," says Christner, the Loyola associate professor. "But they think you can just own something together and it goes automatically to the other person. That's not a good idea for estate planning. If you have a very small amount of assets and live in a state that allows joint tenancy with right of survivorship, that may work, but it's basically not a good idea."

Continued: Procrastinating can create headaches

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