Common Misconceptions of Having An Estate Plan
Raise your hand if you like talking about death. Chances are, the topic leaves you feeling understandably squeamish. But creating an estate plan will help your surviving loved ones during an emotionally tough time and will help ensure that your wishes are being carried out. Key elements to a successful estate plan are a Last Will and Testament, a Durable Power of Attorney, and an Advanced Healthcare Directive. Below we’ve debunked many of the misconceptions swarming around creating an estate plan.
Sounds great, but WHY do I need one?
The probate process, the process of disposing of your assets, can be expensive and can cause it to take longer to get the inheritance to heirs. It's also public.
If you have minor children, it’s especially important to name a guardian(s), which you would do in your last will and testament.
What life events trigger my need for an estate plan?
A change in marital status - marrying, divorcing, losing a spouse, remarrying. Also think about updating your estate plan if you have a blended family or have a change in who you would like to receive your possessions when you pass.
Reaching adulthood triggers the need to review an advanced medical directive, as you will solely be responsible for your own medical decisions. If you cannot make your own medical decisions (ie, car accident leaves you in a coma), the agent you name in your healthcare directive can carry out your wishes for you.
There’s a death tax.
A common misconception is that everyone owes a “death” or “inheritance” tax when they die. What has been nicknamed the “death tax” is actually the Federal “estate tax” and applies to estates (remember, that’s all of your investments and your share of any houses/property) over $11,580,000, adjusted for inflation annually. Very few states have laws associated with someone dying, and for many of them, the spouse is exempt from any taxes triggered by one passing.
I’m married, so my spouse will get everything anyway.
Whoever you have listed as your beneficiary will get your accounts/life insurance proceeds. For example, you are single and list your siblings as the beneficiaries for your accounts and then get married. If you don't update your beneficiaries, your siblings will get the assets at your death. Let’s say you have your spouse listed as the beneficiary for your life insurance policy/401(k)/IRA and decide to divorce. Same principle applies here. Unless you update who is listed as your beneficiary, your ex will get the proceeds if you pass away.
It's just me. I don't need an estate plan.
Not so fast. You still need to designate where your retirement accounts will go and what you want to happen if you can't make your own medical decisions.
I’m not rich enough to need estate planning.
If you've got belongings and debts, you need a plan. You don't need an "estate" to have an estate plan. If you've got minor children - what are you waiting for? Make an estate plan!
My family knows what I want and will do the “right” thing.
The potential for financial windfalls and the major disruption of death within family dynamics are perfect recipes for intentions not going as planned. Why leave good intentions to chance? Unfortunately, we have seen many well-intentioned families divide after a death. Spelling out your preferences legally ensures they are executed.
Doing an estate plan is a one-time thing.
The one constant in life is change. If, for example, you’ve gotten married, divorced, had children, had a death of a loved one/spouse/child, falling out with a potential guardian, found out one of your beneficiaries has a disability or addiction, then you should look at your estate documents again. Depending on how the will was originally written, you may just need a codicil, which is a small amendment to an existing will.