8 Estate Planning Myths
Even though the concept of estate planning is rather straightforward, many people are unclear on what the planning actually entails. This confusion has created some common myths around estate planning. Unfortunately, these myths sometimes prevent people from putting a plan together that can help them protect their family, money, and property in the event of their death or incapacity. This article will address 8 of the most common estate planning myths.
Myth 1 - Estate Planning Is Just For The Wealthy
Estate planning is for people of all ages and walks of life, not just the ultra-wealthy. Regardless of the size of your estate, the value of your estate, or your marital status, you should have an estate plan in place. If you own property and have loved ones that you need your support, it’s especially important.
Estate planning is more than planning for your death; it’s also planning for your lifetime. It can plan for incapacity, protect the future income needs of your family, appoint a guardian for minor children, and more.
Your estate plan consists of more than liquid assets. It contains personal, tangible items, like furniture or jewelry, that may be in dispute if you were to pass away suddenly. Your estate is also likely to grow throughout your life, and the growth may be subject to inheritance and estate taxes. These outcomes can be avoided by consulting with an estate planning attorney to help strategize your estate plan.
Myth 2 - My Spouse or Significant Other Will Immediately Receive My Assets If I Die Without A Will
If you pass away and do not have a Will, your estate will be distributed according to Michigan’s intestacy laws. These are a set of laws to determine who will receive your estate if you do not have a Will. This process takes place in the probate court. Probate can be very long and expensive, especially if you do not have a Will. Additionally, the people you wanted to inherit your belongings may be left out entirely based on the state’s intestacy laws.
Jointly owned property typically passes to the other owners without the need for probate (except for tenancy in common), but other assets may not be treated the same. Also, if you own a small business or property with someone other than your spouse, those assets may not be given to them.
Myth 3 - All I Need Is A Last Will and Testament
While a Last Will and Testament is a good start, you should not stop there. In a Will, you can appoint a Personal Representative who will be responsible for managing your estate and overseeing the proper distribution of your assets during the probate process. It’s important to note that not all of your assets will be distributed according to your Will. For example, assets like life insurance and retirement accounts typically have listed beneficiaries, so they bypass probate court and your Will.
However, in addition to a Will, there are other documents are important to have in your estate plan. Some of these documents are:
- Medical and Financial Power of Attorney
- Living Will
- Revocable Living Trust
- A buy-sell agreement for business owners
- Instructions for the protection of digital assets
Once your estate plan is in place, you should update it periodically and make sure all of your wishes reflect what is currently in your estate plan. This is especially important if there are any changes in your family, health, and marital status. Every year, you should also review beneficiary designations on your retirement accounts, life insurance, and financial accounts.
Myth 4 - A Will Avoids Probate
Even if you have a Will, your assets still have to go through probate court. If you own real estate in more than one state, you may also have to open probate in more than one state. Your Will is essentially a letter to the probate court stating your wishes. If you don’t have a Will, your assets will be distributed according to Michigan’s intestacy laws, so it doesn’t avoid probate. Probate takes a minimum of 6 months to get your assets distributed to your loved ones. However, it can take much longer if your estate is mildly complicated or if your Will is contested.
Myth 5 - A Living Trust Will Protect My Assets From Creditors
A Revocable Living Trust is a legal document that provides many benefits to the creator including avoiding probate court. However, one thing a Trust does not do is protect your assets from creditors. This is because the creator maintains control over the assets they put into the Trust throughout their life. To protect your assets from creditors, you will more than likely need some form of an Irrevocable Trust.
Myth 6 - A Life Insurance Payout Will Not Trigger Estate Taxes
All of your assets, including life insurance, are included in the value of your estate for tax purposes.
Myth 7 - I’m Too Young For Estate Planning
You are never too young to begin your estate plan. In fact, you should begin planning as soon as you turn eighteen years old. You never know when you will need an estate plan, but delaying it could be disastrous if something were to happen to you.
Myth 8 - An Estate Plan Only Matters When You Die
Estate planning is more than planning for your death; it is also about planning for your lifetime. A well-crafted estate plan includes charitable giving, legacy planning, and planning for future incapacity. Unfortunately, permanent disability can devastate families if no estate plan or advanced directives are in place.
Estate planning can help with the following:
- Designate a medical power of attorney to ensure your medical wishes are taken care of
- Designate a financial power of attorney to make financial decisions on your behalf
- Designate a successor trustee to manage your estate on your behalf
- Designate guardians for any minor children if both parents pass away
Estate planning is not just for the ultra-wealthy, it’s for everyone. Your estate planning documents are some of the most important legal documents you will create throughout your lifetime. Working with an experienced professional is incredibly important to make sure that your plan protects your family, money, and property in the way you intended. Schedule a free consultation with an experienced Estate Planning Attorney today. Call us at (248) 613-0007.