Many people have the wrong ideas about wills, trusts, and estate plans. After all, estate planning isn’t something most people think about every day and something they may try to avoid.
Here are some common estate planning myths. These misconceptions often prevent people from taking action and putting in place the necessary plans that will save their loved ones countless headaches and difficulties.
Myth 1: Estate planning is only for the wealthy.
Estate planning is not just about transferring wealth to your family or heirs. It also involves who receives the assets, when they receive them, and how the assets are received. Regardless of how wealthy (or not) you are, it is important to carefully consider the distribution of assets. This is especially important if you have young children, family members with special needs, and/or older parents who you want to support in the event of your death. Without a plan, the laws of the state where you live will determine who gets the assets, which may not align with your wishes. The reality is everyone who owns assets should be in control and create a plan that meets their personal objectives.
Myth 2: Trusts are too complicated to understand.
A trust is simply an agreement between the person who creates the trust (referred to as the Grantor or Settlor) and the person who manages that trust’s assets for the beneficiaries (referred to as the Trustee). The trust itself provides guidance and instructions to the Trustee regarding the distribution of the trust’s assets for the named beneficiaries. Trusts may be complicated or not. They may hold assets for many years, or be distributed shortly after the death of the person who created the trust. Using a trust as part of an estate plan enables you to control who, what, when, and how much.
Myth 3: Creating an estate plan is all about death and dying – too depressing!
Many people are reluctant to discuss estate planning because they do not want to talk about their own death. They just do not want to think about the inevitable and the emotional and financial issues that are associated with death. What these people fail to realize is that creating a will or trust is not about the decedent; it is about protecting and providing for those loved ones who survive.
Myth 4: Once my plan is completed, I am all set!
A common misconception is that once your will and trust are signed, the estate planning process is complete. However, that is not accurate. Executing the documents is not the final step in the estate planning process. The assets that the client owns should be coordinated with the plan. Depending upon the type of plan created, the beneficiaries of assets that pass by contract – for example IRAs, qualified plans, annuities, life insurance – may need to be changed to be coordinated with the estate plan. Additionally, jointly owned and individually owned assets may need to be retitled to ensure the estate plan is effective.
Myth 5: I am too young to need an estate plan.
No one is too young to create an estate plan. There are two documents that are especially important for young adults when they turn 18. Legally, parents have no say over medical or financial decisions involving their adult child. Thus, every individual over the age of 18 should sign a Health Care Proxy and a Durable Power of Attorney. Of course, they are not required to name their parents as the health care or financial agent. In addition, many young working adults have bank accounts, retirement plans and life insurance through work, and own cars and other personal property. Although the value of these assets may not be significant yet, it is important that they take the time to decide who should receive these assets and create at a minimum a will.
Don’t let these myths prevent you from taking control of your assets. Take the time to sit down with your legal and financial professionals and decide what would be the best way to properly plan for your estate and how to distribute your assets to your heirs.
This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.