Many people believe common myths about estate planning.
All cultures around the world have myths.
Some of these involve stories of heroes, villains, and supernatural creatures.
Others involve pithy phrases or offer solutions to common ailments.
Although some of these myths are fairly harmless, others can have dire consequences.
According to a recent The Street article titled “Common Estate Planning Myths,” estate planning is one of the areas where false information is costly.
What are some of these common misconceptions?
A last will and testament is only for property distribution.
A last will and testament should also nominate the executor of your estate.
The executor oversees asset management, debt payment, and inheritance distributions.
Those with minor children will also require a last will and testament to nominate their choices as the guardian for their minor children if both parents die.
Those with a revocable living trust do not need a last will and testament.
A trust only works if it has been properly funded.
This means assets must be titled or transferred to the trust during life or at death by beneficiary designation.
If this step is not taken, then the assets will be included in the probate estate of the individual who died owning the assets.
People often forget to take the steps necessary to fund the trust.
More commonly, people partially fund the trust and leave out newly acquired assets.
By including a last will and testament with the trust, you can designaate the trust or specific heirs to receive assets not “funded” in the trust.
This protects the forgotten assets from being subject to the intestate laws of the state.
Only super wealthy people benefit from trusts.
Although myths like this are commonly believed, there are more reasons to have a trust than to simply protect and transfer generational wealth.
Trusts can be helpful in preparing for incapacity, avoiding probate, keeping affairs private, and retaining greater control of assets and their distribution.
Middle class individuals who have challenging family dynamics can protect money for and from loved ones with addictions or poor choices in spouses.
When heirs inherit young, they often squander the funds.
By allowing for smaller distributions over time, you can prevent poor decision making by young adult heirs.
A trust can take the place of a power of attorney.
Not all assets can be owned by a trust.
For example, an IRA must have an individual owner.
Should you become incapacitated, the trustee will not be able to be involved in managing investments, paying bills, or making Required Minimum Distributions.
Your family will need to petition the courts for a conservatorship to manage these finances.
As a result, a broadly drafted is a must.
Many large financial institutions have their own general durable power of attorney documents regarding assets they administer.
Being “family” means health care teams will talk with you about your loved ones.
Of all the myths, this one can be particularly challenging for newly minted adults in times of crisis.
Hospitals and medical workers are bound by certain privacy laws.
If your child is an adult and succumbs to accident or illness, your child must have a HIPAA release and medical power of attorney appointing you listed as an agent.
Otherwise, you will be unable to communicate with the medical team and make health care decisions.
If any of these estate plannings myths have impacted your estate planning decisions, work with an experienced estate planning attorney to address your concerns and create a plan to meet your needs.
Reference: The Street (Jan. 6, 2023) “Common Estate Planning Myths”