Did you know 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 your loved ones after your 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. You may have heard some of these assumptions surrounding estate planning, but we’re here to help debunk a few popular myths.
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. Making a plan now may leave you with the comfort of knowing that your wishes are 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
The greater your estate, the more potential for complexities when passing it on to others. For some with few assets, taking a do-it-yourself approach may be possible. But 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, you may be able to do it yourself, this is one thing that’s usually best left to an experienced professional.
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 transfered 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
- Disability insurance
- A living will
- Pre- or post-nuptial agreement
- Long-term care insurance
- 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. 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 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, reflecting the magnitude of significant wealth transfer.