Estate planning is one of the most misunderstood areas of financial and legal planning. It encompasses a range of legal tools, including wills, trusts, powers of attorney, and healthcare directives, that work together to protect your assets, designate beneficiaries, and ensure your wishes are carried out. Without a proper plan in place, state intestacy laws will determine how your property is distributed, which may not reflect your intentions. Here are 10 misconceptions about estate planning and the realities everyone should know.
- Myth: Only seniors need estate planning. No one can predict the future, so as soon as you have assets and beneficiaries to pass them on to, consider contacting an estate planning lawyer.
- Myth: Estate planning is only for the very wealthy. Your heirs count on you to have your affairs in order when they go to collect their inheritance. Whether you have an estate over $11.58 million (the estate tax exclusion amount) or not, it never hurts to speak to an estate planning lawyer.
- Myth: Drafting estate planning documents is expensive. In simple financial situations, you may be able to draft many documents yourself at no or low cost.
- Myth: I don’t need a lawyer to help with estate planning. No matter how simple or complex your situation is, it’s always wise to seek legal advice when drafting estate planning documents.
- Myth: If I don’t make a will, the state will get my assets. The laws of intestacy help your assets pass to your spouse and children even if you don’t have a will, but estate planning is the best way to fulfill your wishes after you pass away.
- Myth: If I have a will, my assets avoid probate. A will guides the court, but it doesn’t always avoid probate altogether.
- Myth: Drafting a trust is the only way to avoid probate. It’s one way, but an estate lawyer may recommend other cheaper and easier options based on your situation.
- Myth: Trusts aren’t subject to estate taxes. Most trusts don’t avoid estate taxes by themselves, but they can be used as part of a strategy to reduce or eliminate your tax liability. Speak with an estate lawyer for more guidance.
- Myth: I don’t have enough money for the estate tax to apply. Estates over $5 million (which include home equity, retirement accounts, life insurance proceeds, and more) are scheduled to be taxed 40 percent by 2025. Many states also enact their own estate and inheritance taxes (although Florida isn’t one of them).
- Myth: I’ll owe a gift tax for giving someone more than $15,000 per year. Most gifts over $15,000 simply reduce your lifetime gift and estate tax exclusion amount ($11.58 million). You don’t owe a gift tax until you use up the entire exclusion amount.
