Who knew that October is National Estate Planning Awareness Month? The importance of proper estate planning shouldn’t be understated, as it can be a lasting gift for the loved ones in a person’s life after passing.
The discomfort in talking about plans after death or incapacitation 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 potentially affect the transfer of their estate. People may have heard some of these assumptions surrounding estate planning, but here is some information to help debunk a few popular myths.
Myth #1: An Estate Plan Isn’t Necessary
If a person doesn’t leave behind an estate plan, the family could face major legal issues and (possibly) bitter disputes. Making a plan now may leave the family with the comfort of knowing that the deceased’s wishes are honored when the time comes.
Myth #2: DIY an Estate Plan?
While it may be possible to create a will on one’s own, it can be risky to do so – especially if the 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
The greater the estate, the more potential for complexities when passing it on to others. For some with few assets, taking a DYI approach may be possible. But estate planning, no matter the net worth, can be a complicated process with lots of room for error when done improperly. While, in some cases, doing it by one’s self may be possible, this is an important task that’s usually best left to an experienced professional.
Myth #3: All that’s Needed Is a Will
While a will may state who the beneficiaries are, those beneficiaries may still have to seek a court order to have assets transferred from the deceased’s 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 the heirs avoid probate.
Depending on circumstances, an estate plan may include:
- Life insurance
- Disability insurance
- A living will
- Pre- or post-nuptial agreement
- Long-term care insurance
- Power of attorney
Myth #4: There are Not Enough Assets for an Estate Plan
Everybody has an estate. It doesn’t matter how limited (or unlimited) a person’s means may be, and each adult should have a plan for what will happen to the assets after passing.
Rich or poor, when a person dies, they 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 a wallet and the clothes on the closet. Either way, what is left behind is an “estate.”
If the estate is small, should a person still plan? Well, even if it’s just $10 bill in a wallet, who will inherit it? What about a spouse? Children? How will the funds be disbursed? Without deciding, a legacy of legal headaches could become the result to the survivors. Estate planning is about determining how the current estate (money and assets) will be distributed after a person’s lifetime.
Myth #5: The Estate Plan Never Needs Updating
Any major life event should prompt a person to review the will, trust or other estate planning documents. So should a significant life event that affects a given beneficiary.
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: People Don’t Need to Share their Plan with Others
While a person may not want to explicitly reveal who will get what before your passing, the heirs should understand the purpose and intentions at the heart of your estate planning. If a client wants to distribute more of the wealth to a child than to another, consider writing a letter to be read after your death. In that letter, explain the reasoning.
Make a list of which heirs will receive collectibles or heirlooms. If the family has some issues, this may go a long way toward reducing tension and avoiding legal fees.
Myth #7: All Family Members have Your Estate’s Best Interest at Heart
It’s normal to always see the best in 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 family member to the point where they revise estate planning documents for the caregiver’s financial benefit. When naming beneficiaries or caregivers in an estate plan, think long and hard about the person to trust most to execute the wishes as intended. In some cases, it may be found beneficial to work with a third-party professional to help handle and distribute the possessions after passing, instead.
Myth #8: The Heirs Will Get the 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, reflecting the magnitude of significant wealth transfer.
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.
Company Name: Silverman and Associates
Contact Person: Mark Silverman
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Country: United States