Investors, start planning now for the NIIT - Net Investment Income Tax

Year’s end may seem a long way off. But if you’re an investor, you’d be smart to start projecting your income for the rest of the year right now. Why? In a word, taxes — namely, the net investment income tax (NIIT).

CONFRONTING THE THRESHOLDS

The Affordable Care Act of 2010 created two additional taxes under Medicare to help offset the act’s costs. One was an additional 0.9 percent tax on wages and self-employment income that exceed specified thresholds. For the purposes of this article, let’s focus on the other: the NIIT, a 3.8 percent tax on net investment income to the extent a taxpayer’s modified adjusted gross income (MAGI) exceeds certain thresholds.

Those thresholds are $200,000 for single filers and taxpayers filing as heads of household, $250,000 for married taxpayers filing jointly and $125,000 for married taxpayers filing separately. For most people, MAGI is equal to AGI. One notable exception, though, is for certain U.S. citizens or residents who live abroad and have foreign earned income. Note that these thresholds may, in effect, impose a “marriage penalty” on certain couples by imposing the NIIT where it wouldn’t apply if they were unmarried individuals.

DEFINING INCOME

“Investment income” can mean a variety of things. It includes, in general, gross income from interest, dividends, annuities, rents and royalties. The term can also apply to net capital gains. Also qualifying is trade or business income that is derived from either a “passive activity” under IRS rules or trading in financial instruments or commodities.

Investment income doesn’t include distributions from IRAs, pensions, 401(k) plans or other qualified retirement plans — but distributions from these plans can trigger additional Medicare taxes on net investment income by increasing your MAGI.

MAKING THE RIGHT MOVES

Once your total investment income is determined, deductible investment expenses are subtracted to arrive at net investment income. There are, however, several potential strategies you can implement to reduce or eliminate the 3.8 percent tax on net investment income.

First, you might execute a Roth conversion. If you have substantial balances in a traditional IRA, 401(k) or other qualified retirement plan and you’re considering a Roth conversion, now may be the time to do it. While doing a conversion and increasing your 2016 income may mean that you’re subject to the NIIT this year, future distributions from the Roth IRA are excluded from MAGI, reducing your exposure to the 3.8 percent tax in those years.

Remember, too, that the conversion amount will be included in your gross income this year and subject to tax, but not the 10 percent early withdrawal penalty. Also keep in mind that you’ll have to wait the requisite five years after the conversion to distribute the converted funds or you’ll face a 10 percent penalty.

If you have highly appreciated securities that you’d like to divest, consider the NIIT implications. Perhaps selling all at once this year is advisable because, even with the sale, you won’t be subject to the NIIT. Then again, waiting until next year, or selling some this year and some next year, may better reduce or avoid the NIIT. Whatever you decide, be mindful of the investment risk associated with holding an asset.

Installment sales can also help mitigate the NIIT’s impact. For sales of appreciated assets, consider using the installment method to spread the gain over several years. Depending on your situation, this may allow you to keep your MAGI below the threshold and avoid the 3.8 percent tax or at least minimize your exposure.

Also look into harvesting losses. In years in which you recognize large capital gains, you might want to sell assets in which you have losses. You can use the losses to offset the gains, reducing your investment income and your MAGI.

MANAGING THE IMPACT

The good news is that because the threshold for the NIIT is based on MAGI, strategies that reduce your MAGI could also help you avoid or reduce NIIT liability. Making retirement plan contributions is one example.

This has been a general discussion and is not intended as advice. Tax matters can be complex so seek the advice of a qualified professional before making decisions.

How Much is the Child Tax Credit?

The child tax credit is worth up to $1,000 per child that is under 17. To be eligible to claim this credit your child or dependent must first pass all of the following tests:

Must be 16 or younger on the last day of the year
Must be a US citizen, US national, or a resident alien
Must be claimed by you as a dependent
Must be related to you by blood, or step relationship, or legally adopted child/foster child
Must have resided with you for more than half of the year (special rules apply for special circumstances such as divorce)
You must have provided them with more than half of their support
Child tax credit What is the Child Tax Credit Maximum?

The credit is worth a maximum of $1,000 per child
Until 2017, the Child Tax Credit is partially refundable if your earned income was more than $3,000.
The Child Tax Credit decreases if you have an AGI of $75,000 ($110,000 for married filers and $55,000 for separate filers).
You must include foreign income exclusions when calculating your income for this specific credit.


The Additional Child Tax Credit

The Additional Child Tax Credit (ACTC) is a refundable credit that taxpayers who receive a larger child tax credit than their income owned receive if their earned income is greater than $3,000.

Form 1040 (Schedule 8812) helps determine if you qualify and the amount of the credit that you will receive. If you e-file your return the software will do all of the math for you.



Dependents on Multiple Returns

Only one taxpayer or couple can claim the child for the Child Tax Credit and ACTC. If more than one person tries to claim the child, the IRS will determine who gets to claim the child using the tiebreaker rules.



Child Related Tax SavingsOther Child Related Tax Savings

Exemptions – Receive the standard exemption for each child that qualifies.
Child and Dependent Care Credit – You could deduct up to $3,000 for one dependent, or up to $6,000 for more than one with this credit.
Adoption Tax Credit – If you have already adopted or are in the process, you may qualify for this credit.
Filing Status – If you are unwed and your child resided with you for more than half of the year, you could qualify for a higher standard deduction and lower tax rates with the Head of Household filing status.


Claiming the Child Tax Credit

When you eFile with a service such as Turbo Tax, you automatically are asked the right questions to determine if you qualify for the Child Tax Credit.

4 Questions to Ask Before Passing Down the Vacation Home to Your Kids

FROM http://time.com/money

First step: Make sure your heirs actually want it.


As you’re basking on the deck at your lake house this summer, or tossing a Frisbee in front of your beach condo with your grandkids, you may start to consider: Will my family continue to enjoy this getaway after I’m gone?

If you want to keep your vacation house in the family for future generations to use, it’s time to start planning. Failing to take the right steps to ensure a home’s future ownership — ideally as part of an overall estate plan — can lead to painful family disagreements.

Ask yourself the following questions to ensure you’re making the best decision for your family.

Who Actually Wants It?

A long-held second home can hold strong sentimental value; many couples want to leave vacation homes to their children (or other family members) as a way to preserve the associated memories. Perhaps that’s why many overlook one critical step: finding out whether family members actually want to own it.

For heirs, practical issues could include how far they’ll have to travel to visit the home and whether their income can support upkeep, taxes, and other costs. Then there’s another factor: If that ski condo would make up the bulk of their inheritance, some of your kids might actually prefer, or require, a more liquid asset.

What’s the Best Form of Ownership?

There are different ways to leave a vacation home to your children or family members. One of the simplest methods is to leave the vacation home outright in your will to the particular children or family members you wish to inherit it. Your estate would transfer the deed to your children, and each of the people you cite will own an equal portion.

But what’s simple for you may bring added complexities for your heirs — and, in some cases, cause disagreements and resentment. Equal ownership means all owners would have a say in all decisions concerning the home — when each can use it, whether to rent it out, whether to sell it and for what price, and what projects to invest in to fix it up, for instance. And each owner would bear an equal responsibility to pay for all associated costs.

Another option is to pass down your vacation home through a trust, which can help alleviate some of the tension caused by outright ownership. You’d select a trustee to be in charge of all decisions concerning the home, and your heirs would become the trust’s beneficiaries.


What that means, in practice: They’d have the right to receive rents (if the home were rented) and be able to use the home according to the terms you specify. But the trustee would make the ultimate decisions concerning the property, and be empowered to referee any disputes, helping bring them to a civil conclusion.

The cost of setting up such a trust can vary, but budget at least $2,000 to $3,000. The trustee may also be entitled to annual compensation once he or she takes over, although the amount can vary widely, based on experience and state law.

Who’ll Pay for Upkeep?

Vacation homes can be costly, and your children or other heirs might not be able — or willing to cover house expenses with their own money. So one key question to consider is whether to set aside additional money to cover the home’s ongoing costs. After all: If your kids will need to rent the house in order to afford it, they probably won’t be able to use it during prime vacation times.

That’s why many families who set up a trust leave extra money to cover operating costs. If you can manage that, add up how much it will cost to operate the vacation home for a year; include things like real estate taxes, insurance, and utility bills. Multiply that by the number of years you would like the trust to be able to support the home. Most people pay for at least five years’ worth of expenses — enough to pay for the home in the short term, during which time the children can determine if they actually want to keep it, and which really want it.

What’s the End Game?

Even if you’d like the vacation home to stay in your family for years, it may not be possible. As time passes, your heirs’ families may grow, leaving more people to share the home — many of will be related to each other only distantly — and less time per descendant.

If this seems like a problem your family might face, you can draft your trust so that a sale of the house can be “forced” upon the occurrence of a certain event. For example, let’s say a majority of the trust beneficiaries want the vacation home to be sold. In that case, the trust could give each beneficiary the right of first refusal to purchase the house for its appraised fair market value. And if no child wishes to purchase the home, the trust can require that the home must be sold to a third party, and the net proceeds divided among your descendants as you wish.

Owning a family vacation home is a great privilege, and planning to pass it on to your family is a great way to ensure that generations to come have the opportunity to enjoy it. However, before you do so, it’s important to take steps to assess whether it is in fact the right thing for your family to inherit, and how it would be cared for over the years.

Financial midyear planning tips for small businesses

Even with half of the year in the books, many small business owners wait until the end of the year to assess their business and identify ways to improve on their financial performance. Yet making time for a mid-year check-in — when you have a good idea of your business’s needs — may be one of the best times to help your business save time and money and operate more efficiently in the long run. From preparing for quarterly taxes, to managing cash flow and revising business plans, every business owner can benefit from a financial refresh. The following are three financial tips to help you stay on track the rest of the year.

UPDATE YOUR BUSINESS PLAN

Every small business should have a formal written business plan to help with business decisions and strategic planning. If you don’t have one, or if your plan hasn’t been updated in a long time, now is a great time to consider writing or updating your business plan. The process of putting your goals in writing help you focus on long-term business objectives and the steps needed to achieve them. Business planning also can help identify current or future obstacles so you can better anticipate and avoid potential risks. In addition, a business plan may be helpful for obtaining business financing. For example, for an SBA loan and some larger business loans and lines of credit, lenders may require a formal business plan before extending credit. 

Estimate Taxes

As a small business owner, you’re responsible for filing your business taxes on a quarterly basis. If you don’t already, establish a separate bank account and use it to set aside a monthly amount toward estimated taxes. Also, keeping business checking and credit accounts separate from personal accounts can help you maintain accurate and complete records of all business-related income and expenses, and can help you plan accordingly for when tax payments are due. If you’re unsure about your estimated tax obligations, it’s wise to consult a tax specialist. They can also help you to properly track and record your earnings and deductions.

Recharge your Cash Flow

Business owners know there are two essentials to keep a business running: profits and available cash. One best practice is to check your business cash flow every week. Focus on the timing of income and expenses to identify potential gaps and plan ahead to determine how much cash you’ll need to cover potential challenges. Nearly every small business faces a time when it needs more cash than it has on hand. You may want to consider a business line of credit to help bridge any gaps your business encounters in cash flow. For instance, when taxes are due, you may want to use a line of credit to help keep your cash flow constant and cover ongoing expenses, while paying down your tax debts. Consider making time to meet with your banker for a financial review that includes an assessment of your credit needs. A banker can walk you through the available options, and help you choose the right business financing options that make sense. Remember: the more you talk about your business, your needs, and your goals, the better guidance you’ll receive.

Whether summer is your busiest time of year or your slow season, it’s a good idea to conduct a mid-year financial review. Taking time now can help you stay ahead of the curve and make the most of the remainder of the year.

Midyear Strategies to Cut Your 2016 Tax Bill

FROM KIPLINGER.COM

Okay, the pain of tax-return time should be subsiding. And it’s months before you need to start thinking about year-end maneuvering to give yourself the upper hand over Uncle Sam next spring. But rather than dream of a lazy summertime snooze in a hammock, get revved up about the financial rewards you can reap with some down-and-dirty tax planning.


Close the books on 2015. First things first: If you filed for an extension to complete your 2015 tax return, shake off the notion that you’ll wait until mid-October to finish the job. The extended deadline this year is October 17 because the 15th falls on a Saturday, but that’s no reason to procrastinate. By now, you should have received late K-1s showing partnership income as well as any corrected 1099s. No more excuses.


The IRS’s free-file program, which gives taxpayers free access to commercial return-preparation software, is still available for 2015 returns. If your adjusted gross income is $62,000 or less, check it out at www.irs.gov.

If you have a refund coming, the sooner you file, the quicker you’ll get your money. If you owe more than you paid with your extension request, settling the debt now will limit the interest and penalties demanded by the IRS.


Before you pay any failure to file or failure to pay penalty, check to see if you qualify for “first-time abatement” relief. The IRS can waive the penalties if you filed and paid on time for the previous three years and have paid, or arranged to pay, the taxes due for 2015.

Speaking of your 2015 return, consider whether the bottom line is sending an action memo to you. If you got a big refund, maybe you should adjust your withholding, if you’re still working, or your estimated tax payments for 2016 if you’re paying on investment and retirement income. The average refund so far this year is $2,732, just a bit above last year’s. That’s about $225 a month. If your financial situation is similar, you could be racking up a big refund for next spring.



Wouldn’t you rather have your money as you earn it? If so, file a new W-4 form with your employer to claim one or more extra allowances. That will cut withholding. Our easy-to-use tax withholding calculator can help you set the appropriate number. Conversely, if you owed a bundle when you filed your tax return, you may need to cut withholding or bump up the estimated payments figured on Form 1040-ES.

Boost retirement savings. The maximum contribution for 401(k) and 403(b) plans remains the same as last year: $24,000 for those age 50 and older at the end of the year and $18,000 for younger workers. If you’re not maxing out, consider whether you can afford to save more.

If you opt for a traditional, pretax account, boosting your contribution won’t put a dollar-for-dollar dent in your take-home pay. If you’re in the 28% bracket, for example, adding an extra $500 a month to your 401(k) will cut your take-home by just $360.

If your company offers the Roth option, contributing after-tax dollars would cost you the full $500 in this example . . . but the payoff would be tax-free withdrawals of both contributions and earnings in retirement (see: When It’s Time to Tap a Roth 401(k) for more).

If you’re at the limit for your company plan, don’t forget that you can contribute to an IRA as long as you’re still working. You can contribute $6,500 ($5,500 if you’re under 50) to either a traditional or Roth IRA, or a combination of the two. Contributions to traditional accounts are fully or partially deductible, unless you’re covered by a company plan and your adjusted gross income exceeds $71,000 on a single return or $118,000 on a joint return. Note, though, that deposits to traditional IRAs are not permitted beginning in the year you turn age 70 1/2.


There are no age restrictions for nondeductible contributions to Roth IRAs, but there are income limits. The right to contribute to a Roth is phased out as income rises between $117,000 and $132,000 on a single return and from $184,000 to $194,000 on a joint return.

Although you generally must have earned income to contribute to an IRA, if your spouse isn’t working, you can make a deposit to a spousal IRA for him or her, as long as you have enough income to cover the contribution.

Deal with RMDs. The first baby boomers reach age 70 this year, which means hundreds of thousands more IRA owners will need to take required minimum distributions for 2016. Regardless of whether it’s your first distribution or not, the RMD is based on the balance in your IRAs at the end of 2015. The total is divided by a factor provided by the IRS in Publication 590-B. (For most IRA owners, the divisor is 27.4 for someone who turns 70 this year, for example, and 18.7 for someone who turns 80.)

The later in the year you take your required payout, the longer your money gets to grow in the tax-sheltered environment. If 2016 will be your first RMD, you can postpone the withdrawal to as late as April 1 of next year; otherwise, December 31 is the deadline. If you can choose between this year and next, consider your expected tax brackets in each year and how adding the RMD to your taxable income might affect the taxation of your Social Security benefits and your Medicare premiums.

Two points about RMDs: First, you don’t have to spend the money; you can transfer it to a taxable account. Second, you can always take more than the RMD if you need to.

Or you can give it away. Congress has made permanent the provision that permits IRA owners age 70 and older to transfer up to $100,000 from their IRA directly to a charity. Such transfers count as your RMD, but the money does not show up in your taxable income. In the past, such gifts were usually made at year-end because Congress habitually let this break lapse and revived it at the end of the year. Now, you don’t have to wait. If such generosity is in your plans, contact the charity to arrange the gift.

Make the most of generosity. Giving away an RMD isn’t the only potentially savvy way to make a donation. If you are planning a significant gift to your church, synagogue, alma mater or other charity, don’t automatically reach for your checkbook. Turn to your portfolio instead.

The law has a special rule to encourage gifts of appreciated property, such as stocks, mutual fund shares or real estate. As long as you have owned the asset for more than a year, you can deduct its full market value rather than just what you paid for it. And neither you nor the charity have to pay tax on the appreciation while you owned it.

Because it can take a while to arrange for the transfer of ownership, now is a better time to plan such gifts than as part of a year-end tax-planning frenzy. (Never give away property that has declined in value. You’re better off selling, claiming the capital loss on your tax return and then donating the proceeds of the sale for your charitable write-off.)

Make gifts to the family. You can give up to $14,000 this year to any number of individuals without having to worry about the federal gift tax. If you and your spouse join in the gift, the limit rises to $28,000 per person . . . or $56,000 to a couple. If you are planning significant gifts to children or grandchildren, consider using appreciated assets rather than cash.

Let’s say you and your husband want to give your son and his wife $50,000 for the down payment on a house. Because that’s under $56,000, you wouldn’t even have to file a gift tax return. But instead of cash, let’s say you give the children $50,000 worth of stock that you paid just $30,000 for years ago. If you sold the stock, you’d owe capital-gains tax on $20,000.

But by giving the shares away, you also give away that tax bill. Your tax basis transfers to the children and, if they’re in a lower tax bracket when they sell the shares, the extended family saves some money on the $20,000 profit. If the children are in the 10% or 15% bracket, in fact, at least part of the gain would be taxed at 0%.

Beware, though, that the kiddie tax can put the kibosh on these savings if you’re making gifts to grandchildren. For children under age 19 (or under 24 if they are full-time students), investment income in excess of $2,100 this year will be taxed at their parents’ rate, not their own.

Move to a new state? If this summer brings a move to a new state, brace yourself for a slew of tax changes. Sure, Uncle Sam’s rulebook stays the same, but state income, sales and property taxes vary widely. Differences can be particularly surprising when it comes to how states tax retirement income and special property tax breaks for retirees. Study the estate and inheritance tax landscape, too.

Anatomy of an IRS Phone Scam

Tax day has come and gone — a huge relief to millions across the country. But for an ever-expanding group of Americans, the reprieve may be short-lived. Most of us remain in the crosshairs of a highly charged campaign to collect back taxes. If your clients have not yet received one of the menacing telephone calls threatening heavy fines and jail time (or deportation), they are likely to get one soon. The problem is, it is not the federal government that has been or will be calling. It is a collection of criminals masquerading as IRS agents trying to dupe honest taxpayers into paying money they do not owe.

It is a scam the IRS has continually tried to shut down and warn against, to no avail. The calls keep coming. The fraudsters getting more bold and crafty. The register of victims growing longer and longer — the IRS estimates more than 5,000 since 2013 doling out roughly $30 million in bogus claims. Not to mention the legions of people savvy enough to sidestep the swindle but not before suffering through the threats and bullying so central to the scheme. 

According to IRS Commissioner John Koskinen in one of the many Consumer Alerts the agency has released on the subject, "these schemes touch people in every part of the country and in every walk of life. It’s a growing list of people who’ve encountered these. I’ve even gotten these calls myself." 

The calls are frightening to say the least, preying on the common fear that hell hath no fury like the mighty Taxman scorned. The fake IRS agents will say and threaten to do just about anything to accomplish their dastardly deed. NPR recently released the full audio from one of these calls as part of its own investigation to hunt down these indefatigable thugs. It suggests the typical scam has five distinct stages, if the victim allows it to proceed that far.

1.  IRS calling. First, the caller claims to be from an IRS call center, pronouncing that the victim owes the IRS a significant sum in back taxes. The amount allegedly owed is usually kept under $2,000, a threshold amount calculated to result in the strongest likelihood of payment without undue investigation. In the NPR call, the alleged debt is a very realistic $1,986.73 accompanied by a threat of five years in jail if the victim refuses to pay.

2.  Mum's the word. Second, the caller warns the victim to keep quiet about the alleged debt, exploiting the universal disquiet of being perceived as a tax cheat or deadbeat. It is a dread particularly acute these days with background checks and social media sweeps increasingly part of the job application process. 

3.  Checks not accepted. Third, the caller details how payment should be made. Apparently, they do not take checks or credit. Too easy to trace. Only prepaid debit cards or wire transfers will due. The fraudster recorded by NPR demanded money sent by Western Union or Moneygram, or from a Wal-Mart store.

4.  Making it personal. Fourth, perhaps emboldened they have made it this far into the scheme, the caller identifies a particular individual — not the federal government — as the recipient of the transferred funds. On the NPR call, it was a "Gabriel Porter" in Boston to whom the funds were to be sent. Presumably the name and location changes frequently to avoid detection. 

5.  By any means. Finally, the caller will employ whatever additional means are necessary to seal the deal and keep the victim from speaking out. It can get nasty. In the NPR call, for example, the victim's request for a receipt following payment was met with a verbal harangue of inappropriate suggestions about where she could find the sought-after receipt. 

This mix of bullying and cajoling is obviously calculated to intimidate victims into complying with the demands without asking too many questions. But they should also be a clear indication the call is a hoax. In warning against these scams, the IRS has underscored it will never: (i) call to demand immediate payment; (ii) call or email to verify personal or financial information; (iii) demand payment without an opportunity to question or appeal; (iv) require a specific payment method; (v) ask for credit or debit card numbers over the phone or e-mail; or (vi) threaten immediate arrest for not paying. According to the IRS, any one of these things "is a tell-tale sign of a scam."

The bottom line in all this. Don't let your clients be fooled. Unless they owe the IRS taxes or have reason to think they do, the IRS will not come calling (or emailing for that matter). As Commissioner Koskinen so succinctly puts it, "if you are surprised to be hearing from us, then you're not hearing from us." So the best advice is to just hang up the phone. It is as simple as that. 

5 Simple Steps to Decrease Your Estate Costs

FROM http://www.kiplinger.com/

Like so many undertakings in life, leaving loose ends when it comes to your estate planning can lead to lost opportunities, stressful last-minute fixes or, ultimately, failure to achieve the desired end result—more money left to your family, friends or choice charities. It can cost your estate dearly, and sometimes no amount of time or money can rectify the problems left by half-hearted efforts.

Here are some steps you can take to minimize your future estate costs. And if your estate attorney never discussed these topics, it might be time for a legal checkup or a second opinion.

1. Update your beneficiaries.

At the time of your death, a lot of your estate may not pass by your will. With retirement plans, life insurance and transfer on death (TOD) accounts, you can name a beneficiary to receive these accounts once you pass away.

Remember that a will is only used when we cannot otherwise determine what should happen to an asset when you pass away. If you name your cousin as the TOD beneficiary of your bank account, all he needs to do is provide the bank with your death certificate, and the funds will be transferred to him—no probate needed. Same goes for you IRA or life insurance policy. Naming responsible people as account beneficiaries (meaning people with no debts or disabilities) is a great way to avoid probate and its associated court costs and attorney fees.


And you must be sure to keep your beneficiary forms up to date. Especially if you have been working at a job for more than a decade, you may forget to change your beneficiaries even after the named people pass away. If there is no proper beneficiary named to receive these accounts, your executor must now begin a probate that could have been avoided.

The issue is that many attorneys are not very good with filling in beneficiary designation forms. In addition, many estate planners charge a flat fee for their services, so they have no incentive to go the extra mile, and it is easier for them to draft your legal documents and then say, "My job is done; now you change your account beneficiaries on your own."

2. Cash in physical bonds and stock certificates.

Physical securities are yesterday's news, and tomorrow's problems. Government bonds can be easily lost and are often forgotten, left already mature and not paying out more income. Stock certificates can be even worse, since the stock may have split or paid dividends that were never collected properly. And for some Murphy's Law of estate planning, these assets usually appear after a probate has been settled. This means that an attorney may have to reopen your estate. Turn in those stock certificates to your brokerage account and keep them in electronic format. Find a bank that will accept those old EE or II bonds and deposit them; and if you are worried that realizing the taxes on these bonds will eat into your assets, believe me when I tell you the legal fees your estate shall eventually have to pay will make those tax dollars look like a light dessert after a voracious meal.

3. Check your deeds.

You have just paid thousands of dollars to have an attorney draft you a trust, but the deed to your real estate is not changed to be owned by that trust. In most states, this means the real estate does not pass through your trust, and instead passes through your will and probate when you die.

This outcome can be very costly: Whereas a trustee can list the house for sale within hours of your passing, an executor of your will must first collect documents and procure family signatures to begin the probate process, apply to the court and, in some states, even get court permission to sell the house. In the end, you'll have wasted thousands of dollars paying for real estate taxes, utilities and other carrying costs.

4. Consider consolidating your accounts.

Having too many accounts means more work and more legal fees. Having multiple beneficiaries means more work and more legal fees. Every account, whether it holds $1,000 or $1,000,000, requires a certain amount of work to collect it so consider keeping fewer, larger accounts. (Plus, smaller accounts are easier to miss during the initial collection period.) Leaving a distant nephew a $500 bequest in your will is going to cost you more than $500 to deliver it to him. Keep fewer, larger bequests in your will; better to use TOD accounts for smaller bequests.

5. Keep track of family.

Ask my mom, and she will tell you: I have lived in a lot of places during my life and have not always kept as close contact as she may have wanted at certain times. This can be a real problem if she dies and her retirement plan that named me as beneficiary still has the address where I lived in 2004.

People in small families should name all of their nearest relatives since most states require a listing of heirs under a will even if certain family members are receiving nothing. For example, I have one client whose parents, husband and seven siblings are deceased. She has no children, but has more than 20 nieces and nephews living throughout the country, who all have to be found if she leaves any property to be distributed under probate. The costs for finding these people would practically eat up all of her estate if she had not provided me with their information.

Keeping a secure catalogue of family members and accounts will allow your estate to avoid paying private investigators, genealogists, forensic accountants and attorneys