There are many common estate planning myths. The issue is that people often cite these false beliefs for reasons why they haven’t done their estate planning. We want to clear up these myths, so you’ll understand the value of estate planning in an effort to protect yourself, your family, and your assets.
Myth 1 – Estate Planning is Only for the Wealthy
This is one of the most common estate planning myths. Estate planning is for everyone. If you own assets and want to leave them to your loved ones, you should have an estate plan in place. Plus, estate planning is not just about what happens when you die. It also includes making sure you’re protected if you have health issues by having a health care proxy, living will, and power of attorney in place and that your minor children will be taken care of in the way you want in case something ever happens to you.
Another reason to do your estate planning is as your estate grows, it may be subject to Massachusetts estate taxes, which good estate planning can help you limit. Keep in mind that the value of an estate can add up pretty quickly considering it includes equity in real estate, bank accounts, tangible items like furniture, vehicles, annuities, life insurance proceeds, business interests, retirement accounts, and stocks and bonds. All of those together push you closer and closer to the Massachusetts estate tax threshold of $1 million.
Myth 2 – A Will Avoids Probate
That’s simply not true. A will does have to go through probate, which is a court proceeding that oversees the administration of the will and ensures the validity of the will. Probate incurs costs and fees that will be taken out of your estate, reducing the assets you leave to your loved ones. The process can take 6 to 12 months, or longer if the will is contested.
Myth 3 – I Only Need a Will
Another estate planning myth is that you only need a last will and testament. A will does allow you to select a personal representative who will manage your estate and distribute your assets based on the directions in your will. However, a will has to go through probate, which costs money (e.g., filing fees, attorney fees, appraiser fees) and takes time.
You may want to consider a trust, which has several benefits:
- Unlike a will, which only goes into effect when you die, a trust functions during your lifetime. Let’s say you created a trust and named yourself as the trustee and your sister as the successor trustee. While you’re alive, if you ever become incapacitated even for a short period of time, your sister can easily jump in and manage the assets in the trust according to the trust’s instructions.
- A trust avoids probate, saving the estate money and likely distributing the estate more quickly.
- Certain types of trusts can help lessen the amount of estate taxes incurred.
- A trust also gives you more control over your assets and how they are distributed.
There are also other important documents that are part of an estate plan. Some of these documents are:
Myth 4 – All of My Assets Will Immediately Go to My Spouse or Significant Other If I Die Without A Will
If you pass away without having done either a will or a trust, Massachusetts law of intestacy chooses who will inherit your estate. Your estate will have to go through probate and then your assets will be distributed based on the Massachusetts law of intestacy. Your spouse will get a portion of your estate. However, if you aren’t married to your significant other, that person won’t inherit a thing from you. You must leave directions in a will or a trust as to how you want your estate distributed if you want to leave certain assets to specific people.
Myth 5 – Power of Attorney isn’t Necessary if You’re Married
This estate planning myth can cause trouble for a married couple. Many people believe that if they are married, your spouse automatically has the right to manage your finance and legal efforts, but that isn’t always the case. For example, without a durable power of attorney, your spouse can’t legally access a bank account that is only in your name. A power of attorney can give your spouse legal authority to make decisions on your behalf. Your spouse can then access and sign legal documents and make financial decisions for you. A durable power of attorney is especially important in the event you ever become incapacitated.
Myth 6 – A Revocable Trust Protects Assets From Creditors
A revocable trust (also known as a living trust) offers a lot of benefits, but it doesn’t protect the assets in it from your creditors. A revocable trust is a legal document that takes title to assets to be held for the benefit of one or more people (beneficiaries). A trust can be used to distribute property before death, at death, or afterwards. With this type of trust, you maintain ownership of and access to the assets and have the flexibility to change what’s inside the trust after it’s created. Since you still own the assets, creditors can file a lawsuit against you and gain access to those assets.
Myth 7 – Life Insurance Doesn’t Affect Your Estate Taxes
The truth is that all of your assets, including the death benefit from your life insurance, counts towards the value of your estate. So, it does contribute to the $1 million threshold that triggers the Massachusetts estate tax.
Myth 8 – I’m Too Young For Estate Planning
This is untrue. As soon as you turn 18, you’re considered an adult by the state of Massachusetts. You need to have documents if you want your parents to be able to help you if you become incapacitated. That means having a durable power of attorney so they can pay your bills and manage your finances if you’re unable to do that.
If you become hospitalized and unable to communicate your health care wishes, your parents can only help if you’ve named them in your health care proxy and signed a HIPAA form. Those documents will allow your parents get your health information from your medical team and make medical decisions for you.
Myth 9 – It’s Difficult to Change an Estate Plan Once You Set It Up
People often delay doing an estate plan because of something happening in the near future that could affect it like an upcoming marriage, anticipated birth, or a close family member moving. The truth is life is always changing. It’s important to have your estate plan in place in case you need it.
You can always update your estate plan when a change is needed. We actually recommend that our clients review their estate plans every few years, so they can consider any new life events and make sure the plan continues to meet their goals.
Don’t let these estate planning myths deter you from doing your estate planning. Estate planning is for everyone, not just rich people or older adults. Your estate planning documents are some of the most important legal documents you’ll ever create.
Matthew Karr, Esq., is a skilled, experienced Massachusetts estate planning lawyer and The Heritage Law Center team will work with you to develop the best estate plan for your needs. Contact us today for a free, no-obligation consultation. It’s the first step to putting a comprehensive estate plan in place so it’s there when you need it.