My Copyright Myths blog series has proven to be rather popular, so I thought I’d follow it up with an article on common myths in estate planning. Here are some of the top estate planning myths people believe:
- Estate Planning is for the old and wealthy
Many people believe that if you’re young and/or poor, then you don’t need an estate plan. It’s understandable – young people feel they have plenty of time to get around to it, and it’s hard to imagine someone making a fuss over your estate when there’s very little in it. But even the young and the poor can benefit from an estate plan, for several reasons:- Estate planning doesn’t just cover what happens when you die (another common myth). It also covers what happens when you’re incapacitated, i.e., when you are no longer able to make decisions for yourself. Dementia can strike in any income bracket, and car accidents can happen at any age. An advance health care directive and power of attorney makes sure that you will be taken care of, whatever your age or income.
- While we all hope and expect to live to a ripe old age, there are no guarantees. As the saying goes, “It’s better to have it and not need it than need it and not have it.” Even a simple plan can make things easier for your loved ones and ensure everything goes where you want it to.
- A small estate may avoid probate, but that doesn’t necessarily mean it will be easy to administer. Having a will makes it clear who should be in charge and takes the guesswork out of what to do with your estate.
- A will avoids probate
Probate is required if the estate is worth a certain dollar amount (right now the number is about $208,000). This is true regardless of whether there’s a will. The will may make the probate process a bit easier, but it does not avoid it. To avoid probate, you need a trust.
(For those who haven’t read my previous articles on the subject, probate is when the government oversees the administration of an estate. The idea is to make sure everything goes where it’s supposed to, and your skeezy uncle doesn’t grab your valuables and run, but it’s a long and expensive process, and most people prefer to avoid it.) - If you die without a will, the state gets everything
Debunking this myth may be against my own interests, but the state does not get everything if you don’t have a will when you die. The Probate Code sets out what happens to an estate in the absence of a will; it’s basically a default estate plan for those who didn’t make their own. The Probate Code gives the order of inheritance, and the state is the very last in a long list. - Estate Planning is a one-time task
Unfortunately, creating an estate plan is not the end of the story. Life happens, circumstances change, and your estate plan needs periodic updates to reflect those changes. In a perfect world, I would recommend reviewing your plan annually, but I recognize that’s unrealistic for most of us, so I’ll recommend reviewing it every five years or so. If nothing has changed, then you’re good for another five years; if there have been changes in tax laws or personal circumstances, then an update would be in order. - I don’t need a formal plan
I get it, attorneys cost money, and not all attorneys are pleasant to deal with (though I like to think I’m one of the nice ones). So people come up with workarounds, whether that’s designating beneficiaries on their accounts, going the DIY route, or just telling their loved ones what they want to happen. These can work, but they all have their drawbacks. You could be causing your loved ones to suffer from negative tax consequences, litigation, and/or procedural headaches that could have been avoided if you had a formal plan drawn up by a professional. So while this myth is not flat out wrong, it may not lead to the outcome you want.
If you have questions about these estate planning myths, or if there are others you’re curious about, feel free to email me at kaway@kawaylaw.com.
