Estate Planning Myth Busting: 10 Myths About Estate Planning BUSTED
Do you believe that you are too young, too old, too poor, or too clever for an estate plan? Let’s bust those estate planning myths here.
Stop putting off making your estate plan if it is for one of these mythical reasons!
(Yes, I am an attorney, but, no, I am not your attorney. Nothing in this post constitutes legal advice or creates an attorney-client relationship. This post and this site are merely educational, informational, and entertaining.)
ESTATE PLANNING MYTH 1: The state takes your money if you go to a nursing home.
Medicaid for the aged and disabled (name varies by state) is state-funded (a.k.a. tax-payer-funded) coverage for aged and disabled individuals to receive long-term care.
You cannot qualify for Medicaid unless you satisfy 2 tests:
- 1. An Income Test where your income is lower than a certain ceiling, and
- 2. An asset test where your assets cannot exceed a certain limit (usually less than $2000).
If you do not qualify for Medicaid, the state requires that you pay privately for your care until you run out of assets to pay privately.
If or when you qualify for state-funded care, your spending, income, and types of facilities will be restricted. Therefore, the state doesn’t take your money when you go to a nursing home, it simply requires that you pay your own before the state will pay your way.
RELATED POST: Caregiver Agreements and Planning for Medicaid
ESTATE PLANNING MYTH 2: Powers of Attorney are useful for accessing accounts after death.
A power of attorney grants your attorney-in-fact the right to make your decisions in the event of your incapacity.
In other words, a power of attorney is a document that you create while you are healthy to appoint the person who will make your health and financial decisions when you are not healthy.
Durable powers of attorney continue in effect even when you are mentally or physically incapacitated. However, a power of attorney dies with the person who made it.
A durable power of attorney can be either immediately effective or springing –meaning that some powers of attorney can be used only when you become incapacitated. However, regardless of whether it is immediately effective or springing, it always dies with you.
RELATED POST: Types of Powers of Attorney
A power of attorney is no longer effective after the death of the principal. All powers of the attorney-in-fact cease immediately upon the death of the maker. Therefore, you cannot use a power of attorney to access accounts after death.
ESTATE PLANNING MYTH 3: Naming a joint account owner is an effective estate planning strategy.
In all my years doing estate planning, I have never recommended that any client add a non-spouse as a joint owner on an account. Why?
Yes, naming a joint owner is an effective method for avoiding probate for that particular asset after death. However, there are a number of drawbacks to naming a non-spouse as a joint owner. Further, you can easily avoid these drawbacks with appropriate estate planning instead of your DIY plan.
Some of those major drawbacks include:
1. Your joint owner has the right to completely liquidate the account.
Your joint owner has the full right and authority to liquidate the entire account for any reason at any time. Regardless of who contributed the money or who needs the money, a bank will not restrict a joint owner from withdrawing the full amount in any joint account.
2. Your account can become the subject of a divorce settlement.
In many states, your joint account can now become part of a divorce settlement. This means that you would then have to appear at your son or daughter’s divorce hearing to argue to the judge that despite the fact that your son/daughter is an owner of the account, the account is really yours.
3. Your account can become part of the joint owner’s bankruptcy.
In bankruptcy proceedings the party must list every asset he or she has an interest in. This includes jointly held accounts. Therefore, if your child has a potential for bankruptcy, your hard-earned cash could be used to satisfy the outstanding debts.
4. Your account can be used to satisfy judgments or claims against your joint owner.
Even if you trust your child or friend implicitly, accidents happen. If your joint owner is in a horrific accident or terrible tragedy and has a judgment against him or her, your assets are now part of that settlement. This is a terrible way to lose your nest egg.
5. Your account is no longer subject to your estate plan at your death.
Finally, adding a joint owner on an account does not subject that account to the rest of your estate plan. The remaining joint owner after your death has 100% control and ownership of the account. Therefore, your joint owner is under no compulsion to share or distribute that account to your other beneficiaries. Further, dividing that account might result in gift tax liability for the joint owner.
RELATED POST: Why You Should Think Twice before Making a Child a Joint Owner.
ESTATE PLANNING MYTH 4: Writing your own will is good enough.
Some states still allow holographic (hand written) wills. However, that is not the norm. Further, even holographic wills are subject to strict rules about handwriting vs. typing. handwriting confirmation, and even signatures.
The creation of wills in every state is subject to very strict rules. There is no will-ish or almost will. A last will and testament must meet the writing, content, and signature requirements set out by the state.
Some states require that the document be both signed and notarized by multiple people — none of which can be related to you.
Other states require that a warning or an affidavit be attached to the document prior to signing or approving it.
In any event, most hand-written DIY wills are not enforceable. Writing your wishes out on a piece of paper is a nice sentiment, but It is not a will, is not enforceable in a court, and means nothing for tax or gift purposes.
Without a will, the state makes one for you. Without a proper will, you will be deemed intestate (die without a will), and your estate is subject to the state’s intestacy laws.
ESTATE PLANNING MYTH 5: Executors are the people who receive and choose how to divide the money.
Executors, administrators, or personal representatives are the fiduciaries responsible for the proper administration of an estate.
Personal representatives may or may not be beneficiaries of the assets. Instead personal representatives are merely the hands, feet, and mouth of the estate –completing the tasks and responsibilities required by the decedent and the state’s laws.
RELATED POST: Important Considerations for How to Choose a Personal Representative
Executors/Personal representatives make no decisions about who receives money or assets. Personal representatives have no right to cut people out or receive assets themselves. Instead, personal representatives are charged by law to carry out the law and the intentions of the last will and testament.
Personal representatives can be held civilly or criminally liable for the misappropriation of estate funds or assets and are bound by the terms of the will.
ESTATE PLANNING MYTH 6: I don’t need a will because my estate all goes to my spouse anyway.
After a lifetime of dedication and marriage, you might believe that everything that was yours and ours is now mine. However, you might be surprised to find out that without a will, a spouse might be left high and dry.
If you fail to make an estate plan, the state makes one for you. Each state has different laws and rules that apply to spouses. You might be surprised to find that your spouse doesn’t even receive half of your assets.
In some states, your spouse may only be eligible to receive 10-25% of your estate. And, that is only if your spouse finds a lawyer to represent him or her to sue your estate –another costly endeavor.
So, if you want your estate to go to your spouse, then make sure to get an estate plan. I have seen far too many spouses lose their home, vacation spot, vehicle, or retirement account after the loss of their spouse.
ESTATE PLANNING MYTH 7: Estate planning is too expensive.
Attorney fees vary from firm to firm and state to state. However, you might be surprised to find that the reputable local lawyer in your area charges a fair and reasonable fee for peace of mind.
Further, you might be surprised to learn that many of your assets can be transferred by non-probate transfers thereby saving you the unnecessary costs of probate.
Probate can cost tens of thousands of dollars without proper planning. However, working out the details and making appropriate decisions before death might save your children or your estate the unnecessary costs of probate.
ESTATE PLANNING MYTH 8: Probate is unavoidable.
If you are looking at Myth 7 and still aren’t convinced because you believe that probate is unavoidable, you would be wrong. Every state has permissible planning to keep you from probate administration.
While the orderly court-appointed administration of your estate is not in and of itself a bad thing, it is almost always EXPENSIVE and LENGTHY.
RELATED POST: Why You Want to Avoid Probate.
However, with a good estate plan, you can do your family the favor of avoiding probate entirely by using non-probate transfers of assets such as transfer on death deeds, trusts, beneficiary planning, LLCs, or other mechanisms.
All of these assets may avoid probate and the stress of ongoing court proceedings entirely.
ESTATE PLANNING MYTH 9: I am too young and poor to have an estate plan.
Estate planning is for anyone over the age of 18 regardless of net worth.
Many people come to my office insisting that they have no money in the bank, nothing in investments, and no money to pass to their children. However, after we talk for a few minutes, we discover that the client has been steadily paying for the family home for the last 30 years.
RELATED POST: Estate Planning Isn’t Only for the Elderly
In reality, he or she is sitting on a $250,000 asset that can easily be passed to children or other beneficiaries.
Or, even if you do not own any assets, you may have young children.
If you are a parent and don’t have any assets, you should still have an estate plan that appoints a legal guardian and provides for their ongoing care at your death.
RELATED POST: The Four Documents Every Parent Needs to Protect Their Children
Estate planning is not only for the elderly or the wealthy. Instead it is for anyone over the age of 18 especially those who own significant assets, have children, or want to alleviate headache for friends and family.
ESTATE PLANNING MYTH 10: Estate planning is private and shouldn’t be discussed.
If you believe that your estate plan is none of my business, then you are probably correct. But, if you believe that your estate plan is no one’s business, then you are probably incorrect.
Discussing your estate plan with a trusted friend or family member is an important step in the estate planning process.
RELATED POST: The Importance of Discussing Your Estate Plan
If no one knows that you have a will, then how will they know that you want your spouse or child to receive everything? Where will they find your documents?
If no one knows that you have a power of attorney, then who will respond to medical or financial questions while you are in the hospital? Do you want them to have to pursue a court-ordered guardianship?
Completing an enforceable and personally-tailored estate plan is essential, but talking with someone about that plan is essential to setting the plan in motion.
ESTATE PLANNING MYTHS BUSTED
Lots of myths and misconceptions surround estate planning. Fears of state laws, taxes, and greed keep many people from making an estate plan.
Further, still others believe that they don’t need an estate plan, that their families will be fine without it, or that it an estate plan is too expensive. Paralyzed by these myths, many fail to make an estate plan and leave their family in an expensive mess.
Don’t be fooled by these myths. Get an estate plan with a reputable, licensed attorney in your area to put your own mind at ease and protect you against some common estate planning pitfalls.