There are a lot of reasons people drag their feet on creating an estate plan. Many of my clients tell me they’ve meant to “get this done” for some time. But there are also people out there who think they don’t need anything, or at least not yet. Sometimes they’re right, but in many cases, they’ve bought into a myth that’s just not true. Here are three common myths about estate planning:
- Too young to need an estate plan
This myth is very common and based on the age of most of my clients, many young people have bought into it. The truth is that every adult should have some type of estate plan, even if it’s just a straightforward one. There are many scary stories of celebrities dying unexpectedly at a young age and the issues that could have been resolved with a basic will. For example, Jimi Hendrix died at age 27, and his estate went to his father, who then left the estate to his stepdaughter. Jimi was not close to his father or his stepsister, but he was very close to his brother, Leon Hendrix, who received nothing from the estate. If he had just had a will giving everything to his brother, this outcome could have been avoided.
The estate plan also covers more than where everything goes after death. It also covers what happens if you are incapacitated, i.e., unable to make decisions for yourself. For example, if you’re in a car accident and in a coma at the hospital, the advance health care directive will tell the doctors who they can talk to about your care and what you want to happen. Without it, the doctors will not disclose your medical information to anyone, even other family members. A Power of Attorney will give someone the legal ability to pay your bills for you, so you don’t find an eviction notice waiting for you after a lengthy hospital stay. Accidents can happen to anyone, at any age, so it’s best to be prepared just in case.
- Too poor to need an estate plan
While few people would use the word “poor” to describe themselves, many would say that estate plans are only for the wealthy and that they don’t qualify. People with a richer estate can use estate planning to reduce their estate tax, but estate taxes are not the only reason to have an estate plan. Avoiding probate is also an excellent reason to have an estate plan. For those who don’t know, probate is when the government oversees the distribution of the estate. The probate process is usually long and expensive, and in California, it’s required when the estate is worth more than $166,000 (as of 2021). That number is much lower than the current estate tax threshold, and it puts most everyone who owns a home in California into probate territory.
Another reason to have an estate plan, regardless of your level of wealth, is if you have minor children. In your will, you can name who you want to raise your children if you can’t do so yourself. If you don’t name anyone, then the courts will decide on a guardian, and they won’t have the insider knowledge that Aunt Patricia may look like a good choice, but the kids would hate living with her.
- Too simple to need an estate plan
Many people feel that there’s no need for a formal estate plan because everything will go to the spouse and kids. They’re all reasonable people, and if a problem comes up, they’ll “do the right thing.” However, there are a few problems with this assumption.
First, even if your heirs are clear-cut, they’ll likely still have to deal with the probate process (see above). Because of the probate process, it could take a long time before anyone inherits anything. Then, probate and attorney fees could take a large chunk of whatever you thought you stood to inherit.
Second, inheritances very often bring out the worst in people. For instance, family members that used to be perfectly reasonable suddenly insist that they’re owed a bigger chunk of the estate because Dad loved them more. Or that Mom would have wanted them to have this piece of jewelry, or that their brother should get less because of that time he… you get the idea. Assuming that everyone will be okay with an even split is just asking for trouble.
Third, even if everyone does get along and is reasonable, the “right thing” doesn’t mean the same thing to everyone. For example, one person may believe the right thing is to sell all Mom’s jewelry and split the proceeds, while another may believe the right thing is to give specific pieces to specific people. It makes life easier for everyone if these things are spelled out in advance.
Common myths about estate planning abound, and they lead many astray. If you’re unsure whether you need an estate plan or what your estate plan should look like, please feel free to email me at firstname.lastname@example.org.