Eight Estate Planning Myths

© 2005 Haskett Law Firm, P.C.

Many people who are just beginning the estate planning process fall victim to bad advice from friends or from unreliable sources they find on the Internet. The truth of the matter is that every individual who has real property or more than $100,000 in assets, or who has children, should seek assistance in planning their estate from a qualified estate planning attorney who is experienced is determining what type of planning is appropriate for you.

Some of the following misconceptions surrounding wills and living trusts lead people to put off proper estate planning by relying on other property management techniques.

MYTH No. 1: Holding property in joint tenancy is a cheaper, easier way to avoid probate than a revocable trust.

FACT: Although holding property in joint tenancy will avoid probate, it is a terrible way to transfer property at death. Executing a deed is a present gift to the joint tenant and there may be significant gift tax consequences for that gift. In addition, the joint tenant owns the property and may be subject to his or her creditors. A house put in joint tenancy by a parent for a child is subject to the child’s creditors and could be liquidated without the parent’s consent. Finally, unlike an estate plan which is fully amendable and revocable, a gift of property into joint tenancy is not revocable without the cooperation of the donee. If you have a falling out with the joint tenant, you cannot simply take the property back.

MYTH No. 2: Avoiding probate saves federal estate taxes.

FACT: Avoiding probate does not save taxes. The probate system and probate avoidance have to do with state law and the manner in which property passes at death from a decedent to others. Federal estate taxes are determined by an entirely separate body of law which is contained in the Internal Revenue Code. Significant estate tax results do not depend upon the use of probate or the avoidance of probate.

MYTH No. 3: I have a will, I don’t need a trust.

FACT: A will does not help you manage your property in the event you are incapacitated. A will only comes into effect at death. A well drafted trust has provisions for how your property should be managed in the event you cannot manage the property yourself.

MYTH No. 4: If you have a revocable trust, the surviving spouse need do nothing after a death.

FACT: After the death of a spouse, the surviving spouse must contact an attorney familiar with probate and trust administration to determine if any actions need to be taken. Failure to follow the legal formalities after death can have serious tax and administrative implications. Although a fully funded living trust allows you to avoid probate, it does not allow you to avoid all legal and administrative obligations.

MYTH No. 5: I will automatically inherit all of my spouse’s property upon his death.

FACT: Community property belongs half to each spouse. Upon one spouse’s death without an estate plan, that property only goes to the spouse under certain circumstances. A portion of the separate property may go instead to the children and not to the spouse.

MYTH No. 6: I can do my own estate plan.

FACT: There are advantages and disadvantages to most forms of estate planning. Many kits and do-it-yourself software programs allow you to create your own documents. However, estate planning is more than just creating a form document. You cannot create an effective document without understanding how it will work at the time it is needed most. Trusts drafted and administered through kits or from internet forms are a leading cause of trust and probate litigation. Money spent securing good documents now will save your heirs a significant amount of money in the future. Finally, every family should work to develop a long term relationship with a local attorney. You never know when you may need legal services of one kind or another and your family attorney can frequently help you or can refer you to another reputable attorney.

MYTH No. 7: Estate planning is only for the wealthy.

FACT: Many factors other than wealth affect the need for estate planning, such as: (1) caring for a minor or disabled child; (2) transferring ownership of property in accordance with your desires; (3) caring for a surviving spouse; (4) transferring closely held business interests (5) transferring ownership of property in another state; (6) charitable giving; (7) avoiding probate; (8) avoiding taxes; and (9) care of pets.

These are only some of the reasons to plan your estate. Everyone has their own objectives, but the size of an estate is not the only reason to plan.

MYTH No. 8: I am too young to plan.

FACT: This is only true if everyone knew when they would die or become incapacitated. Furthermore, everyone needs to have a health care power of attorney in place to enable someone to make health care decisions for them in the event they become ill or are in an accident.