Rosalind Evans
Estate planning is a widely misunderstood area of personal finance. Misinformation can lead to missteps that cost time, money, and unnecessary stress. Here are ten persistent myths about estate planning:
1) Estate planning is solely for the wealthy.
This misconception is partly due to professionals focusing primarily on the federal estate tax, which only applies to estates beyond $12,920,000. While estate tax concerns the affluent, estate planning also involves directives in case of incapacitation, health care decisions, and inheritance arrangements. It’s essential for anyone who might face illness or death—basically, everyone.
2) I’m too young to consider estate planning.
The unpredictability of life doesn’t exempt the young. Notable young celebrities have tragically passed away without a will, emphasizing the importance of early planning.
3) Dying without a will means the state inherits everything.
A common fallacy. If you die intestate (without a will), state laws will dictate inheritance. Creating a choice ensures your assets are distributed according to your wishes and appoints guardians for minor children.
4) Having a will guarantees no probate.
A choice guides the court on your intentions but doesn’t bypass probate. Probate can be lengthy, costly, and public. If you have properties in multiple states, each might require its probate process.
5) You must hire a lawyer for estate documents.
While some situations warrant professional assistance, free or low-cost resources are available online and through hospices for drafting health care directives, power of attorney, and simple wills.
6) An estate planning attorney is unnecessary.
Although many resources are available, complex issues might arise, and professional oversight can be invaluable. Finding a qualified attorney might be less costly than anticipated, especially if they’re merely reviewing, not drafting from scratch.
7) Probate can only be avoided with trust.
While trusts can help, more straightforward methods might be effective. Jointly-owned assets often bypass probate, as they make purchases with designated beneficiaries. Some states even offer “transfer on death” or “payable on death” options to circumvent probate.
8) Trusts guarantee exemption from estate tax.
Most trusts don’t inherently offer tax benefits. If estate taxes are a concern, seeking specialized legal advice is crucial, as certain beliefs can be strategically employed.
9) Only the wealthy need to be concerned about estate taxes.
At the federal level, perhaps. However, state-specific estate taxes might have lower thresholds. The cumulative value of assets like homes, insurance policies, and retirement accounts can quickly approach these limits.
10) Gifting over $17,000 annually incurs a gift tax.
Amounts exceeding $17,000 contribute towards the lifetime federal gift and estate tax exclusion (currently at $12,920,000). The actual tax is due once the entire exclusion amount is surpassed. Nevertheless, annual skills beyond $17,000 require gift tax return filings.
In summary, the complexities and evolving nature of estate planning fuel these misconceptions. Being informed can help sidestep potential pitfalls and ensure your wishes are honoured.
Navigating the intricate maze of estate planning is daunting, but understanding the fundamental truths and discarding misconceptions is the first step to protecting your assets and wishes. As you plan for the future, it’s crucial to be informed, consult professionals when necessary, and continually reevaluate your plans as life evolves. With knowledge, you can confidently create an estate plan that stands the test of time.
