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
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
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.2
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 attorney.
Myth #2: 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 transferred 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 #3: 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
- New Employment
Myth #4: 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.3 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 #5: 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.4
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.
Estate planning is about determining how what you have now (money and assets) will be distributed after your lifetime.