Debunking Common Estate Planning Myths 01/20/10
Estate planning is the process of providing for yourself and your family in the event of your retirement, disability or death. Through a properly-crafted estate plan, you put your legal and financial affairs in order so that the assets you have accumulated during your lifetime will be preserved and transferred to your heirs with the least amount of financial and emotional cost.
Having an estate plan in place is better than no planning at all. However, having a great estate plan in place is ideal! It can save you and your family thousands of dollars.
Unfortunately many people fall prey to one of the many myths about estate planning. This can cause their families and loved-ones to be left with a smaller inheritance, unnecessarily complicated probate court proceedings, and even costly lawsuits.
Let's debunk those myths!
1. I'm only 25, far too young to need an estate plan.
FALSE. If you are over 18, you need an estate plan. If you become disabled during lifetime (far more likely than death when you are young), your estate plan provides for someone to help you manage your financial and health care decisions during your life. Plus, if you own anything at all, even a checking account and car, death without an estate plan can cost more than the assets are worth. Why cost your family money?
2. I only have a small savings and checking and some life insurance, I'm too poor to need an estate plan.
NO WAY. Once you take into account the value of your home, your bank accounts, your retirement funds, and insurance policies, you might be wealthier than you thought. Anyone who is concerned about how their assets are managed now and how they will be distributed after their death needs to be concerned with his or her estate plan.
3. My estate is so simple that all I need is a simple Will.
NOT NECESSARILY. Many people think that having a Will avoids the Probate court process and directs the distribution of their assets. However, that is untrue. The title of the assets will determine to whom and how the assets will be distributed. Assets that are titled joint and survivorship, payable on death (POD), transfer on death (TOD) or that have a designated beneficiary will pass to the persons named on the title. Be sure to review the title of all of your assets when you begin your estate plan.
4. Once I complete my Will, that's the only estate planning document I need.
WRONG. Your Will only deals with your Probate assets after you die. If you become incapacitated during your lifetime, you also need someone to take care of your financial affairs and medical decisions while you are still alive. For that, you need a Durable Financial Power of Attorney, a Durable Health Care Power of Attorney and a Living Will Declaration. Plus, you may benefit from having a Trust Agreement.
5. If I leave everything to my spouse, my assets will never be subject to any Estate Taxes.
NOT TRUE. There is a special Estate tax credit for assets left to a spouse. However, if you simply leave everything to your spouse without some planning, you may be wasting half of the possible credit available.
6. Once I create and sign my Estate planning documents, I am done. Whew, I never have to think about that again!
MYTH. Birth, death, adoption, divorce, debt, changes in asset values and many other factors can affect your Estate planning. You need to review your estate plan periodically, at least every three to five years or when there are major changes in your life.
7. If I enter a Nursing Home, a Revocable Trust Agreement will protect my assets.
INCORRECT. There are many ways to plan to protect assets, but having your assets in a Revocable Trust Agreement is not one of them. For that, you need Medicaid Planning. Revocable Trust Agreements, however, can be useful for probate avoidance, estate tax avoidance and other estate planning reasons.
8. An On line Form Is All I Need.
VERY WRONG. On line Estate Planning forms are useful to give you an idea about what to do. But be aware that every state has different requirements for the specifics of Wills, Trust Agreements and other Estate Planning documents. You must follow the rules in your state to ensure that your documents are legally valid when you really need them, at disability or death.
Watch out for these myths. With a little thought and the help of a good attorney, your estate plan will work to protect your hard-earned wealth for decades to come.