There are myths that circulate about estate planning, and if you buy into them, you can make mistakes that yield unintended negative consequences. With this in mind, we will look at four of them in this post in an effort to raise awareness.
Estate planning is only for the rich.
Some people think that estate planning is something that is only important for high net worth individuals. Yes, people that are in possession of a significant store of wealth have to put estate plans in place, and the federal estate tax can be a source of concern for these individuals.
This tax is applicable on the portion of an estate that exceeds the exclusion, which is $11.7 million in 2021. It will remain at this level indexed for inflation for the next few years, but it is going down to $5.49 million in 2026.
Even if you do not have estate tax concerns, you should definitely work with an attorney to put a plan in place. There are different approaches that can be taken, and the right way to proceed will depend on the circumstances.
Your estate plan should be custom crafted to suit your needs, and as a layperson, you would not be aware of all the options that are available to you.
A will is the only estate planning document you need if you are not wealthy.
The simple will is the most commonly used estate planning device, and it is better than nothing, but there are some reasons why you should consider a living trust.
A will is admitted to probate, which is a legal process that takes place under the supervision of a court. It will take close to a year in many instances, and some complicated cases will be stuck in probate for longer periods of time.
The heirs to the estate do not receive anything while the estate is being probated by the court, and the expenses that accumulate reduce the inheritances that will eventually be received. Another negative is a loss of privacy, because probate records are available to the general public.
If you have a living trust, you would act as the trustee while you are alive, and you would name a successor to assume the role after your passing. When the time comes, the successor trustee would distribute the assets to the beneficiaries, and probate would not be a factor.
This is one of the benefits that a living trust will provide, and there are a number of others.
You do not need an estate plan until you are a senior citizen.
The overall life expectancy in the United States is about 78 years, but this does not mean that you do not need an estate plan when you are under 70 years of age. You should definitely have a basic plan in place as soon as you are a self-supporting adult.
If you get married, estate planning becomes more important, and it is an absolute must when you are the parent of a dependent child.
You should make sure that you have sufficient life insurance, and you should have a plan for guardianship and management of assets on behalf of your child or children.
Do-it-yourself estate planning is a simple solution.
There are websites that sell downloads worksheet that you can use to create legal documents, including simple wills and trusts. They contend that it is easy for anyone to plan their own estate using their tools.
In reality, there are some compelling reasons to steer clear of DIY estate planning notions. First, as a layperson, are you aware of all the different asset transfer methods that are available to you?
Do you know why you may want to use a certain type of trust based on your family situation and your legacy goals? Have you considered the important of incapacity planning and nursing home asset protection?
There is no reason to take chances with risky DIY estate planning when qualified legal counsel is just a phone call away.
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