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Top 10 Estate Planning Myths

Estate planning addresses many issues, from who inherits your property or handles your finances to who takes care of you if you’re incapacitated to who manages funds for a disabled child. Unfortunately, there are many myths around estate planning, as explained in the recent article “Debunking the Top 10 estate planning myths” from Insurance News Net.

Only wealthy people need estate planning. This is easily the biggest myth of estate planning. Estate planning addresses planning for incapacity and taking care of your legal and financial affairs if you can’t. It also includes planning for end-of-life care and delineating what medical procedures you want and don’t want. Estate planning also creates a plan for families with minor children, if something should happen to parents.

Having a will means avoiding probate. Probate is the court process where the court reviews your will, establishes its validity and allows your executor to administer the estate. If your goal is minimizing or avoiding probate, talk with an estate planning attorney about retitling assets and creating trusts.

You need a trust to avoid probate. A trust is only one way to avoid probate. You could consider titling assets as joint tenants with rights of survivorship, although there are risks involved in doing so. Depending on your state of residence, you might also consider various transfer-on-death arrangements. Assets with beneficiary designations, like IRAs, 401(k)s, annuities, and other financial accounts, pass directly to beneficiaries.  You might also give away assets while you are living.

Putting a house in joint and survivorship ownership with an adult child will avoid probate. You may avoid probate. However, you create tremendous risk with this move. If your adult child becomes a half-owner, you’ll need their okay—and their spouse’s approval, too—to sell the house. You won’t qualify for the tax-free sale of your personal residence on half of the sale proceeds, unless your child also qualifies. If your child has financial problems or undergoes a divorce, their half ownership could be attached by creditors or be owned by an ex-spouse.

My will says who will inherit my IRA. The beneficiary designation on IRAs, life insurance and retirement accounts, and any account with a beneficiary designation overrides whatever your will says. The will does not control annuities, payable on death accounts, or transfer on death accounts and affidavits. You should check these forms periodically to ensure that the funds go where you want them to go.

I don’t need a will if my beneficiary forms are correct. However, you still need a will. For example, if a child dies before you, what happens to the assets if they were the beneficiaries? What happens to assets if a beneficiary is not of legal age and cannot inherit the money directly? Who makes decisions if there are multiple children and real estate decisions that need to be made? What if an adult child has a debt problem? Who will pay your final expenses? These are just a few issues that are addressed by wills.

A revocable trust will protect assets if I enter a nursing home. Totally wrong. Medicaid planning usually involves an Irrevocable Trust to protect assets. Revocable trusts will not make you eligible for nursing home care.

Trusts avoid probate. Assets in a trust don’t go through probate. However, it is only if the trust is funded. Assets must be immediately placed in the trust, usually through re-titling, or postmortem through beneficiary designations. Otherwise, the assets go through probate.

If my will says, “per stirpes,” my grandchildren will inherit assets if my adult children die first. This oversimplification of a complex issue is typical of estate planning myths. Grandchildren only inherit assets if the adult children die before the grandparent. If you want your grandchildren to inherit assets, you need a “bloodline” trust. An estate planning attorney will help you accomplish this.

I only need a will and a trust for my estate plan. This is another big mistake. An estate plan includes documents for incapacity and end-of-life, including Power of Attorney, Health Care Power of Attorney, Advanced Directives and a Living Will Declaration.

Reference: Insurance News Net (March 15, 2023) “Debunking the Top 10 estate planning myths”

What Is Probate Court?

Probate court is a part of the court system that oversees the execution of wills, as well as the handling of estates, conservatorships and guardianships. This court also is responsible for the commitment of a person with psychiatric disabilities to institutions designed to help them.

Investopedia’s recent article entitled “What Is Probate Court?” also explains that the probate court makes sure all debts owed are paid and that assets are distributed properly. The court oversees and usually must approve the actions of the executor appointed to handle these matters. If a will is contested, the probate court is responsible for ruling on the authenticity of the document and the cognitive stability of the person who signed it. If no will exists, the court also decides who receives the decedent’s assets, based on the laws of the state.

Each state has rules for probate and probate courts. Some states use the term “surrogate’s court”, “orphan’s court”, or “chancery court.”

Probate is usually required for property titled only in the name of the person who passes away. For example, this might include a family home that was owned jointly by a married couple after the surviving spouse dies. However, there are assets that don’t require probate.

Here are some of the assets that don’t need to be probated:

  • IRA or 401(k) retirement accounts with designated beneficiaries
  • Life insurance policies with designated beneficiaries
  • Pension plan distributions
  • Living trust assets
  • Payable-on-death (POD) bank account funds
  • Transfer-on-death (TOD) assets
  • Wages, salary, or commissions owed to the deceased (up to allowable limit)
  • Vehicles intended for immediate family (under state law); and
  • Household goods and other items intended for immediate family (under state law).

Investopedia (Sep. 21, 2022) “What Is Probate Court?”

What Should I Know About Probate Costs?

The cost of probate depends on several factors. One of the most important is the state where the decedent lived. The cost of probate varies from state to state, depending on the general cost of living in the state and state probate laws. Other factors also impact the cost of probate.

Nasdaq.com’s recent article entitled “How Much Does Probate Cost?” provides a breakdown of fees associated with probate. The process of probating an estate will settle the estate after the decedent’s death and following their last will and testament. It’s also used for those who die without a will or intestate. Assets owned only by the decedent are usually addressed in the will and are distributed according to the decedent’s wishes. An executor is usually named in the will, and an administrator of the estate is appointed in the case of a decedent dying intestate. The executor takes an inventory of the decedent’s assets, pays the decedent’s outstanding debts and presents the inventoried estate to the court for settlement. If there are no objections to the will, the estate is closed. If there are objections, the probate judge is responsible for settling them. The longer the probate process drags on, the more expensive it will be.

Probate can be a time-consuming process. A modest estate may take six to 24 months to settle. Larger estates can take even longer, if they’re complex.  It also necessary to add in more time if the will’s contested or beneficiaries can’t be found. The longer the process, the more expensive it becomes. Probate costs in 2021 run about 3% to 8% of the value of the estate. Let’s look at the key costs of probate:

Court Costs. This includes filing fees. Some states require the same filing fee for all estates, while others have a graduated scale depending on the size and complexity of the estate. The more complex the estate, the higher the court costs.

Executor Costs. The executor of a will is typically paid at least a nominal fee. Fees are mandated by state law, unless the decedent specifies in his or her will what the executor should be paid. Some states permit a flat and “reasonable” fee which may be determined by the court. Other states require a graduated fee, such as a certain percent of the estate for the first $100,000 and so on. If the will doesn’t state the executor’s fee or if the decedent dies intestate, the court determines the executor’s fee.

Accounting Fees. Accounting costs can be high with more complex estates. If the decedent has complicated business affairs to sort out or owns many stocks and other securities, the complexity will require higher accounting fees. The accountant will also have to file federal and state taxes in the form of a final return.

Attorney Fees. When the executor believes an attorney is needed, the attorney is paid out of the estate. Attorney’s fees can be state-mandated, determined by the court, or set by the attorney depending on the anticipated workload.

Estate Administration Fees. The executor will often incur significant costs of administering the estate, such as property appraisals, and a real estate agent may have to be hired and paid to dispose of property or businesses. A property may also have to be managed until it’s sold or the estate is closed.

Reference: Nasdaq.com (Feb. 2, 2023) “How Much Does Probate Cost?”

What Is Needed in Estate Plan Besides a Will?

Having a will is especially important if you have young children, says FedWeek’s recent article entitled “Estate Planning Doesn’t Stop with Making a Will.”  In your will, you can nominate guardians, who would raise your children in the event neither you nor your spouse is able to do so.

When designating a guardian, try to be practical.

Remember, your closest relatives—like your brother and his wife—may not necessarily be the best choice.

And keep in mind that you’re acting in the best interests of your children.

Be sure to obtain the consent of your guardians before nominating them in your will.

Also make sure there’s sufficient life insurance in place, so the guardians can comfortably afford to raise your children.

Your estate planning isn’t complete at this point. Here are some of the other components to consider:

  • Placing assets in trust will help your heirs avoid the hassle and expense of probate.
  • Power of Attorney. This lets a person you name act on your behalf. A “durable” power will remain in effect, even if you become incompetent.
  • Life insurance, retirement accounts and payable-on-death bank accounts will pass to the people you designate on beneficiary forms and won’t pass through probate.
  • Health care proxy. This authorizes a designated agent to make medical decisions for you, if you can’t make them yourself.
  • Living will. This document says whether you want life-sustaining efforts at life’s end.

Be sure to review all of these documents every few years to make certain they’re up to date and reflect your current wishes.

Reference: FedWeek (Dec. 28, 2022) “Estate Planning Doesn’t Stop with Making a Will”

Is Estate Planning and Writing Will the Same Thing?

An estate plan is a broader plan for your assets that may apply during your life as well as after your death. A will states where your assets will pass after you die, who will be the guardian of your minor children and other directions. A will is often part of an estate plan, but an estate plan covers much more.

Yahoo’s recent article entitled “How Is Estate Planning Different From Will Planning?” says that if you’re thinking about writing your will or creating an estate plan, it can be a good idea to speak with an experienced estate planning attorney.

A will is a legal document that describes the way you want your assets transferred after your death. It can also state your wishes when it comes to how your minor children will be cared after your death. Wills also nominate an executor who’s in charge of carrying out the actions in your will.

Without a will, your heirs may spend significant time, money and energy trying to determine how to divide up your assets through the probate court. When you die intestate, the succession laws where you reside determine how your property is divided.

Estate planning is much broader and more complex than writing a will. A will is a single tool, and an estate plan involves multiple tools, such as powers of attorney, advance directives and trusts.

Estate planning may include thinking through topics even beyond legal documents, like deciding who has the power to make healthcare decisions on your behalf while you’re alive, in addition to deciding how your assets will be distributed after your death.

Therefore, wills are part of an estate plan. However, an estate plan is more than just a will.

A will is just a first step when it comes to creating an estate plan. To leave your family in the best position after your death, create a comprehensive estate plan, so your assets can end up where you want them.

Reference: Yahoo (Oct. 20, 2022) “How Is Estate Planning Different From Will Planning?”

Where Should an Estate Plan Be Stored?

If you have a medical emergency or die unexpectedly, and your documents can’t be located, your family will be scrambling to give you the assistance you need or to close your final affairs, says AARP’s recent article, entitled “Storing Legal Documents in an Easy-to-Find Place for Family Caregivers.”

Security and accessibility are the two primary factors in making the decision about where to store originals. However, frequently the most secure spot isn’t always the most accessible.

Some attorneys offer to keep the originals of your legal documents for safekeeping. However, this has drawbacks. Your family would have to contact the law firm and obtain the release of the documents.

If you opt to keep your original documents at home, secure them from fire or flood. A fire-rated safe is more protective than a file cabinet.

If you lock them up, remember that someone will need to either have a key or know where the key is.

If you decide not to provide copies or originals to your future caregivers and loved ones, tell them where they’ll be able to find the documents, if they need them (and how to access them!).

If you’re reluctant to tell them in advance, leave a letter of instruction for their use if you’re incapacitated or pass away.

Inform your attorney of the location and ask them to note it in your file or perhaps provide a copy of your letter of instruction for them to keep.

If you decide to change the location, let the attorney know.

When you draft new documents, make certain you destroy or discard your now-outdated documents.

Send a notice of revocation to anyone who’s holding copies or originals. If you’ve recorded any of those documents, record the notice of revocation as well. Also, ask that anyone holding copies also destroy or discard the documents in their possession.

You don’t want your loved ones to get delayed in probate court if they can only find a copy of your documents or, even worse, no documents at all.

Organization and dialog are critical to both safeguarding your paperwork and making it easy for your loved ones to use it when the time comes.

Reference: AARP  (July 27, 2022) “Storing Legal Documents in an Easy-to-Find Place for Family Caregivers”

Can I Contest Dad’s Will While He’s Still Living?

The Maryland Daily Record’s recent article entitled “Wills cannot be challenged until testator dies, Md. appeals court says” explains the Court of Special Appeals said a will or revocable trust is only a draft document until its drafter, or testator, has died.

As a result, those challenging a living person’s will or trust would be merely “presumptive heirs” who have no legal standing to challenge a legal document that’s not yet final.

“Pre-death challenges to wills may be a waste of time – the testator might replace the will with a new one, die without property, or the challenger might die before the testator,” Judge Andrea M. Leahy wrote for the Court of Special Appeals.

The appellate court’s decision was the second defeat for Amy Silverstone, whose legal challenge to her mother Andrea Jacobson’s will was dismissed by a Montgomery County Circuit Court judge for lack of standing.

Silverstone argued that the will should be declared void based on her claim that her aunt unduly influenced her mother. The mother suffers from dementia and memory impairment.

This undue influence led Silverstone’s mother, Andrea Jacobson, to change her will in 2018 to expressly “disinherit” Silverstone and her son, Silverstone alleged.

The mother’s new will stated that Silverstone and her son shall not “in any way be a beneficiary of or receive any portion of the trust or the grantor’s estate.”

The disinheritance came amid a falling out between mother and daughter, according to court documents.

Silverstone’s challenge to the will and related trust is premature while her mother is alive, the court held.

Reference: The Maryland Daily Record (Dec. 12, 2022) “Wills cannot be challenged until testator dies, Md. appeals court says”

Are My Children Entitled to My Money?

Let’s say that one of your children hasn’t had contact with you since COVID in 2019. She’s been off the radar and never calls. You may not feel obligated to give them an inheritance.

Nj.com’s recent article entitled “We want to cut one child out of our will. Can we?” says that adult children aren’t legally entitled to an inheritance.

Unfortunately, will contests generally happen where a child who’s left less, or disinherited, thinks that a sibling has wrongly influenced a parent to leave more to him or her.

This is particularly problematic if the parent is elderly and/or in ill health and completely reliant on that child for assistance.

A will contest is a probate proceeding where interested parties dispute the validity of a will.

The most common legal grounds for disputing the validity of a will are undue influence, duress, mistake and the decedent’s lack of capacity when they signed the will.

To properly avoid a will contest, you should work with a qualified estate planning attorney who will document his or her file and prepare a will for you with appropriate language.

Note that it isn’t necessary or advisable to provide an explanation as to why you’re disinheriting a child. That’s because if you give a reason, that reason may cause controversy.

If avoiding litigation is a priority, as an alternative to totally disinheriting a child, your attorney can also talk with you about the different forms of “no-contest” clauses that can be placed in a will.

This clause, also called an `in terrorem’ clause, indicates that if a beneficiary raises a claim with respect to the will, he or she will lose his or her inheritance.

There’s also typically a time limit to contesting a will. For example, in Minnesota, those with standing who want to contest a will must do so within a year after the death of the deceased person.

For a no-contest clause to be effective, a child must be a beneficiary of some amount in your will.

The courts will uphold this clause, unless it finds there is probable cause for bringing a court action.

Reference: nj.com (Dec. 2, 2022) “We want to cut one child out of our will. Can we?”

The Basics of Estate Planning

No matter how BIG or small your net worth is, estate planning is a process that ensures your assets are handed down the way you want after you die.

Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

  • Your car
  • Your home
  • Financial accounts
  • Investments; and
  • Personal property.

Estate planning is the process of deciding which people or organizations are to get your possessions or assets after you’ve died.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

Your estate plan details who gets your assets. It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, your estate plan also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

Your estate plan directs assets to specific entities or people in a legally binding manner. If you want your daughter to have your coin collection or your favorite animal rescue organization to get $500, it’s all mapped out in your estate plan.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your estate plan.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

The Benefits of a Good Estate Plan

If you don’t have a comprehensive estate plan, state law will control. That’s unlikely to coincide with what you would choose to do. MSN’s recent article entitled “What is estate planning?” discusses the benefits of estate planning.

Minimizes taxes. Clever structuring of flexible retirement accounts, such as a Roth IRA, can help funnel more tax-free money to your heirs, while other tax-planning strategies like strategic charitable giving can help you mitigate estate taxes.

Prevents family disputes. The possibility of a fight about who gets what of value or even a sentimental treasure can arise without proper planning.

Clarifies your directives. Although you may have always intended for your niece to get a certain heirloom, unless it’s written out in your estate plan, it may not get into her hands. If you clearly spell out your wishes with the help of an experienced estate planning attorney, you can help your loved ones remember you fondly or at least get what you intended.

Avoids the time and expense of probate court. Done correctly, a trust can help your family avoid the hassles of probate court. Because of the ease of using a trust, more people are doing an end-run around probate and setting up their assets this way. You don’t need as much wealth as you might think to make it worthwhile.

Keeps your family assets together. Trusts can be a good way to make sure your money stays in the family. With the help of an estate planning attorney, a trust can keep a beneficiary from blowing your lifetime of hard work in a few years.

Protects your heirs. If you have minor children, a will can instruct who will take care of them. A living will can help heirs avoid some difficult health decisions during a parent’s end of life.

Sound estate planning can help avoid several potentially troubling problems.

Reference: MSN (Oct. 13, 2022) “What is estate planning?”

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