There are a number of myths that circulate about estate planning, and when people buy into them, they make mistakes that yield negative consequences. In this post, we will look at three of these commonly embraced misconceptions to help you steer clear of these errors.
Assuming the State Will Take Care of Everything
Some people think that estate planning is really not that important because the state will step in to take care of everything if you pass away without a Will or Trust (known as dying intestate). There is truth to this, because the probate court does handle intestate estate matters, but the outcome will be less than ideal at best.
The court, not you, will decide who will be the administrator, and creditors would be notified so final debts can be paid. They would be given a certain amount of time to come forward, and there are procedural and logistic steps that must be taken by the administrator.
This is a time-consuming process, and it is inefficient. Ultimately, the court will instruct the administrator to distribute the assets that remain using the rules of intestate succession.
If the assets are distributed in this manner, the government, and not you, will not decide who receives what. Someone whom you would never leave out could be disinherited, while others might receive more or less than what you would have left to them.
There is no reason to take any chances with intestacy when qualified assistance is just a phone call away.
It’s Easy to Plan Your Own Estate
There are websites that sell do-it-yourself, boilerplate legal documents, including wills and trusts. They contend that anyone can fill in the blanks and voilà, they have a perfectly constructed estate plan in hand.
Since we have an interest in serving clients, you may take our opinion about the subject with a grain of salt, so we won’t share it. However, we will cite a study that was conducted by Consumer Reports.
They engaged staffers to create last wills using worksheets that they acquired from three of the leading purveyors of legal documents. Three legal professors were brought in to help with the experiment, and they examined the wills to measure their efficacy.
The educators found flaws, and they stated that unintended negative consequences can come about when these tools are used by inexperienced people. Consumer Reports recommended against DIY estate planning unless the circumstances are extremely simple and straightforward.
Trusts Are Only for Wealthy People
Far too many people think that trusts are only for high net worth individuals who are exposed to estate taxes. It is true that people who have tax concerns use trusts to mitigate the damage, but there are other types of trusts for “the rest of us.”
The trust that is useful for the widest range of people is the revocable living trust. As the name would indicate, you retain the right to make changes and revoke it, and you can act as the trustee while you are alive and well.
You would lose no control of the assets, but you would be setting up the ideal estate administration situation. When you establish the trust, you would name a trustee to act in the event you become sick and after you die, and you decide who will be the beneficiaries after you have passed on.
There are several protections that can be included in a trust. A spendthrift provision can be included to protect the trust assets from the beneficiary’s creditors if this is a source of concern. You can provide remarriage protection in the event your spouse decides to remarry after your death, so that the trust property will be protected for your children rather than being lost to a new spouse. You can also provide divorce protection for your children and instruct the trustee to distribute limited assets over an extended period of time.
After your passing, the trustee would follow your instructions and distribute assets to the beneficiaries in the way you want. These distributions would not be subject to probate, which is a time-consuming and expensive court process that would be a factor if you state your final wishes in a will. With a properly funded trust, there will be no court involvement in the event you get sick and at your death. Your affairs will remain private and there will be a smooth transfer of inheritance to your loved ones.
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