Clearing Up Common Estate Planning Misconceptions

Television, movies, books, friends, family, the news media, and the internet are all full of information regarding Estate Planning. However, each person’s planning situation is unique, so reliance on a one–size-fits-all approach can lead to unintended results.With this in mind, we present the following list misconceptions people often have about estate planning.

1. Having a Will automatically avoids Probate

False. In fact, the primary purpose of a Will is to prepare for possible probate and a Will typically needs to be accepted by a court before its provisions become legally enforceable. (That said, a Will can still be useful outside of probate: it alerts parties to their respective rights and it can provide the basis for collecting certain assets even if probate does not take place.) Probate avoidance is accomplished through other strategies outside of a Will.

2. Estate planning is just for the elderly

False. If parents with young children want to avoid lengthy guardianship proceedings, they need a Will to clarify who should act as guardian for their child(ren) in the event they pass away. Parents of adult children may want to control where, when, and how their assets are distributed or used in the event their kids are not “financially responsible” or have other challenges (i.e., substance use, gambling, disabilities, etc.). And, everyone should plan for incapacity, including management of financial assets and directives on possible end-of-life health care choices. Moreover, all of us should want to ensure that, at death, assets will go to the beneficiaries of our choosing.

3. I am married so everything will pass to my spouse

While most married couples have relatively simple wishes for the distribution of their assets, you should not assume that you do not need an estate plan because “my spouse will get everything.” A spouse does not automatically inherit your assets in every situation. If you have children from a prior relationship, a portion of your assets may pass to them. Assets may also be subject to claims made by creditors. Furthermore, if a spouse receives a large inheritance, you may want that to pass to your children and not your spouse. And both spouses may die together, which could complicate estate administration and necessitate probate.

These are just a few situations in which a fairly simple estate plan would avoid these complicated issues.

4. If I become incapacitated, my personal representative can handle my financial affairs

False. Your personal representative does not get appointed until after you die. If you become incapacitated, only your appointed attorney-in-fact (under a Power of Attorney) or your Successor Trustee (under a Trust) may act on your behalf.

5. Estate planning is just for the wealthy

False.One of the most common misconceptions is that the average family does not have an “estate.” An estate really means everything you own at your death. While it is true that wealthier individuals are more compelled to create estate plans due to tax considerations, estate planning is not solely about tax avoidance.Regardless of your wealth, you should plan for: incapacity; wishes for end-of-life; avoiding the expense of probate; and ensuring assets go to the people and charities you choose.

6. I need to have a Trust in order to avoid probate

Many people get an estate plan specifically to help their heirs avoid probate. A trust is just one of several strategies to avoid probate. However, there may be simpler ways to avoid your estate going to probate.

First, if at the time of your death, you hold jointly owned property with your spouse or another person, the property will generally pass to the other owner(s) without going through probate. Second, designating beneficiaries as “payable on death” on assets such as life insurance, annuities, qualified retirement assets (i.e., 401(k), 403(b), IRA), and bank accounts avoid probate for as long as at least one listed beneficiary is still living. Executing a Transfer on Death Deed for real estate, or even executing “transfer on death” registrations for vehicles can help avoid probate. Each state also has procedures to expedite or even skip probate for “small estates.”

7. Having a trust will avoid estate taxes

Having certain types of trusts can help minimize estate taxes, but it does not automatically avoid them. Careful planning needs to be done if your assets exceed the estate tax exemption. Even if you had your estate plan prepared within the last few years, it’s important to keep in mind that tax considerations vary as laws, family situations and your assets can all change over time. This makes it important to review your estate plan regularly to ensure it addresses your current situation.

8. I should put a joint owner on my real estate to avoid probate

This is certainly an important strategy, but it’s not always that simple. There are potential income and gift tax consequences for adding joint owners on to property. Additionally, it could complicate your eligibility for medical assistance.

9. Estate Planning is only about the money

Although money is a common motivating factor for people to create an estate plan, the goals of effective estate planning often go beyond mere financial objectives. Estate planning makes things easier for family members during a time when they are grieving the loss of a loved one. A well-prepared plan allows you to prepare for incapacity, express your wishes after you pass away, help your family avoid probate, and reassure loved ones that they are carrying out your wishes.

10. Estate Planning is expensive and time-consuming

Despite the initial expense of engaging an attorney to draft documents, good estate planning saves both money and time in the long term. The cost of a well-ordered estate plan can easily pay for itself several times over in avoided taxes and/or probate expenses.Probate also can take a year or more to complete, and can cause unnecessary family tensions.

11. If I pass away without a Will, the state will get my assets.

Only in very rare circumstances. While there are many reasons to create an estate plan, being concerned that the state will get your assets should not be one of them. If someone dies without a Will, then the state’s laws on intestacy takes effect. While the inheritance rules vary from state to state, generally, the surviving spouse and the children of the deceased are first to inherit, followed by parents, siblings and more distant relatives. So, do assets ever go to the state? Yes, but only when no relatives can be found, which is very uncommon. As long as a relative can be located, no matter how distant, the state should not inherit your assets.

There are many considerations and nuances to Estate Planning, and if done incorrectly or completely avoided altogether, it can have potentially disastrous results.An Estate Planning attorney is key in explaining your options and helping you implement specific strategies for your estate that meet your individual goals.


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