Common estate planning misconceptions, as well as a lack of focus on legacy planning, have resulted in a number of common myths which have led people to believe that an estate plan is unnecessary. With 2021 well-underway, it is important for individuals, families, entrepreneurs, and estate holders to reevaluate the untruths they have previously accepted regarding estate planning.
By debunking common estate planning myths and informing people of the importance of such planning, individuals can then embrace the need to protect their vulnerable assets, plan for the transfer of wealth to their beneficiaries, and craft a plan for generational success.
Myth 1 – I am not wealthy enough to need an estate plan
Estate planning is for everyone – not just the wealthy. Individuals who own real property, have liquid assets, own insurance, or support loved ones who are dependent on their assistance should have an estate plan in place, regardless of value or size of the estate, marital status, or age.
Estate planning also encompasses much more than the distribution of your net-worth. For example, planning for incapacity ensures that your wishes are carried out regarding decisions about your health care. An estate plan is critical for protecting the interests and future income needs of a spouse and/or minor children, and can cover a range of directives for the appointment of guardians of people and property.
Your estate is also made up of more than just liquid assets. Existing inventory in a self-owned business or personal tangibles – such as jewelry, furniture, and other items of sentimental value – are often subject to disputes among family members after an unexpected death. And while perhaps not a present concern, the value of your estate will likely grow over your lifetime and may be subject to various estate and inheritance taxes, which could significantly diminish any distributions made to your loved ones. Avoiding this outcome is possible, however, since an estate planning attorney can help to strategize a way to reduce such tax liabilities.
Myth 2 – An estate plan only matters when you die
Estate planning is not just about distributing your assets in the event of your death. In fact, charitable giving, legacy planning, as well as planning for your future incapacity, are major areas of importance in any well-crafted estate plan. A permanent disability or incapacity can leave people and property vulnerable especially when no estate plan or advance directives exist.
Among other considerations, an estate plan can help with the following in the event of incapacity:
- Designate a health care surrogate to ensure your health care wishes are met
- Authorize a designated agent to make financial decisions on your behalf
- Authorize a successor trustee to administer your trust assets on your behalf
- Designate guardians of minor children
Myth 3 – I have a Will, so I am covered
A Will allows you to name an executor/personal representative who is appointed by the court and charged with overseeing the proper distribution of your estate during probate. However, certain assets may not be controlled by the terms of your Will – like life insurance or retirement accounts – and may therefore not be protected for your beneficiaries, as you had intended in your Will.
Separate from a Will, several other legal documents are important for you to consider for the protection of your interests in the event of death or a permanent disability, such as:
- Durable power of attorney over your financial matters
- Living Will to express your wishes on terminating or withholding life support
- Revocable trust
- Buy-sell agreement for business owners
- Instructions for the protection of digital assets – the security of online assets, cryptocurrency, accounts, login credentials, software, etc.
Once an estate plan is put in place, it is important to perform “check-ups” on your plan regularly. Changes to your family, tax law, your health, and the economy should be reflected in your estate plan. It is important to review your beneficiary designations on your retirement assets, life insurance, and financial accounts annually or whenever changes in your life or family occur.
Myth 4 – Even if I pass away without a Will, my spouse or significant other will immediately receive my assets
If you pass away without a Will, the state you live in will apply its “laws of intestacy” to determine which individuals will receive which funds or assets. Even with a Will, your estate is subject to the probate process and assets may be distributed to individuals other than your spouse based on state law. While jointly-owned property generally passes to other living owner(s) without going through the probate process (with the exception of tenancy in common), other assets may be unavailable to your spouse or significant other during probate, or may even be distributed to unintended beneficiaries, such as a spouse from a prior marriage or financially irresponsible children. Should you own a business or property with a person other than your significant other, the fair value of those assets may also not be allocated to your loved one.
Although estate planning remains prone to perceived misconceptions, thanks to its complex and nearly constantly-changing process, debunking common myths and consulting with a qualified attorney can help to avoid costly mistakes and protect the interests of both yourself and those you love.
Charla M. Burchett is a partner in the Sarasota office of Shutts & Bowen LLP, where she is a member of the Private Client Services Practice Group.
A Martindale-Hubbell AV® Preeminent™ rated attorney, Charla is a Board Certified ...
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