Did you know that October 18-24 is National Estate Planning Awareness Week? This could be a good time to invest a bit of energy into your own estate plan. The importance of proper estate planning can't be overstated, and can be a lasting gift for your loved ones after your passing.
The discomfort in talking about plans after death may cause certain myths and misconceptions to circulate. Many people plan their estates diligently, with input from legal, tax and financial professionals. Others plan earnestly but make mistakes that can negatively affect the transfer of their estate. You may have heard some or all of the following myths surrounding estate planning -- we are here to help debunk them.
Myth #1: An Estate Plan Isn’t Necessary
If you don’t leave behind an estate plan, your family could face major legal issues and (possibly) bitter disputes. An estate plan predetermines some of the legal decisions associated with the transfer of assets, avoiding confusion, misunderstanding, and, in the worst case, unethical actions. Making a plan now will leave you with the comfort of knowing that your wishes are known and can be honored when the time comes.
Myth #2: You Can DIY Your Estate Plan
While it may be possible to create a will on your own, it can be risky to do so - especially if your estate is complex. Look at the example of Aretha Franklin. The “Queen of Soul’s” estate, valued at $80 million, may be divided under a handwritten or “holographic” will. The family discovered multiple wills among her personal effects. Provided that the handwritten will can be authenticated, it will be probated under Michigan law, but such unwitnessed documents are not necessarily legally binding.1
Estate planning, no matter your net worth, can be a complicated process with lots of room for error when done improperly. While in some cases of very low net worth, you may be able to do it yourself, estate planning is one thing that is usually most successful with the help of an experienced professional, such as a fee-only financial planner and/or an estate attorney.
Myth #3: All You Need Is a Will
While your will may state who your beneficiaries are, those beneficiaries may still have to seek a court order to have assets transferred from your name to theirs. In such a case, those assets won’t lawfully belong to them until the court procedure (known as probate) concludes. Estate planning can include items like adequately prepared and funded trusts, which could help your heirs avoid probate.
Depending on your circumstances, your estate plan may include:
- Life insurance
- A living will
- Pre- or post-nuptial agreement
- Transfer on death designations for assets
- Power of attorney
Myth #4: You Don’t Have Enough Assets for an Estate Plan
You have an estate. It doesn’t matter how limited (or unlimited) your means may be, and you should have a plan for what will happen to your assets after your passing.
Rich or poor, when you die, you leave behind an estate. This estate can include real estate, cash, an investment portfolio, collectibles and more. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is your “estate.”
If your estate is small, should you still plan? Well, even if you’re leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them or be split between them? If you don’t decide, you could potentially be leaving behind a legacy of legal headaches to your survivors. Estate planning is about determining how what you have now (money and assets) will be distributed after your lifetime.
Myth #5: Your Estate Plan Never Needs Updating
Any major life event should prompt you to review your will, trust or other estate planning documents. So should a significant life event that affects one of your beneficiaries.
These events could include (but are not limited to):
- New baby or adoption
- Purchase of significant assets (homes, boats, collectibles, automobiles)
- Death of an immediate family member
Myth #6: You Don’t Need to Share Your Plan With Others
While you may not want to explicitly reveal who will get what before your passing, your heirs should understand the purpose and intentions at the heart of your estate planning. They should also know where to find the documents related to your estate plan if you decide not to reveal them before your passing.
If you want to distribute more of your wealth to one child than another, consider writing a letter to be read after your death. In that letter, explain your reasoning. Make a list of which heirs will receive collectibles or heirlooms. If your family has some issues, this may go a long way toward reducing tension and avoiding legal fees.
Myth #7: Everyone Has Your Estate’s Best Interest at Heart
We always see the best in our closest friends and family, but it’s important to be protective and realistic regarding your assets. A potential caregiver harboring a hidden agenda may exploit a loved one to the point where they revise estate planning documents for the caregiver’s financial benefit. When naming beneficiaries or caregivers in your estate plan, think long and hard about who you trust to execute your wishes as intended. In some cases, you may find it beneficial to work with a third-party professional, experienced in estate transfer, to help handle and distribute your possessions after your passing instead.
Myth #8: Your Heirs Will Get Your Estate at Its Full Value
Probate subtly reduces the value of many estates. In some cases, it can take more than a year, and attorney’s fees, appraiser’s fees and court costs may eat up as much as five percent of a beneficiary’s accumulated assets. For what do these fees pay? In many cases, routine clerical work. Few estates require more than that. Heirs of small, five-figure estates may claim property through affidavit, but this convenience doesn't apply to larger estates.2
The best estate plans are clear in their language, evident in their intentions and updated as life events demand. They are overseen through the years with care and scrutiny by both the owner and a financial planning professional, working to achieve the most effective transfer of wealth to loved ones or charitable beneficiaries.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.