"Top Sixteen" List of Common Misconceptions in Estate Planning
04.29.2007
Over the years, I have developed a list of common misconceptions in estate planning, and the list seems to grow each year. Currently, there are 16 items on this list, and in future issues of our newsletter, I will address each individual misconception. I suspect that there are at least one or two items on the following list (which is modeled after David Letterman's "Top 10" List), that will ring a familiar bell to each reader:
16. "My estate isn't large enough to worry about 'estate planning'."
15. "I don't need a lawyer to assist me with my Will - I found a very good form on the Internet."
14. "I just have a minor revision to my Will, so I'll just mark the changes and initial them."
13. "It's been five years since I last reviewed my Will, but my intentions are the same, so I am okay."
12. "We own everything jointly as husband and wife, so there is no need to worry about a Will until one of us dies."
11. "We have a lot of life insurance, but since insurance is not taxable, there is no need to worry about doing any tax planning for that particular asset."
10. "My husband and I have 'joint Wills', so we know that when the second of us dies, everything will pass to our children as we have provided in those Wills."
9. "A Prenuptial Agreement is not necessary in our case...we know that our marriage will last, and that our children from our previous marriages will be protected after we pass."
8. "My sister can handle the duties of Trustee...all she has to do is hold on to the Trust assets and make sure that the children receive them at the ages stipulated in my Will. It won't take her any time at all, plus she won't charge for serving."
7. "Probate is something that I must avoid!"
6. "I'm not worried about beneficiary designations on my life insurance and retirement benefits. I think I named my husband, and I don't need to be concerned about the 'contingent' beneficiary."
5. "I don't need a Durable Power of Attorney. My daughter takes care of all of my finances, so I added her name as a joint owner on all of my accounts. She knows that when I die, it all gets split four ways among her and her three sisters."
4. "I don't need a 'Living Will' - my family knows that I don't want any 'extraordinary measures' if there is no hope."
3. "My children can handle their inheritances at age 21. They don't need a Trustee watching over their money."
2. "I don't need to read my Will for accuracy. My lawyer sent a draft to me, but he told me what was in the Will, so I'm sure everything is fine."
1. "We are concerned about our son's marriage and whether it will last, but his inheritance from us won't be part of his and his wife's marital estate if he gets divorced after I die."
Estate planning is a critical part of everyone's life. There are many misconceptions relating to "estate planning," and what it entails. Many clients think that estate planning only concerns those persons with great wealth; however, this phrase really applies to all individuals who are concerned about how their "My estate isn't large enough to worry about 'estate planning'."
Let's start with #16. Clients almost universally say that their estate is "simple," and they do not need any "fancy" estate planning, since their intentions are "simple." It is important to understand that the term "estate planning" affects everyone, not just the wealthy. "Estate planning" means just that…..planning what happens to your assets (and your liabilities!) upon your passing. It involves reviewing how your assets are titled (i.e., individually, jointly, with right of survivorship, tenants in common, tenants by the entireties, partnership, etc.), the value of those assets, the beneficiary designations on all life insurance and retirement benefits, and the potential effect of income, gift and death taxes.
To have a properly coordinated and effective estate plan, it is important that you not fall into the trap of thinking that your estate is so "simple" that you do not need to take time to reflect upon how all of the pieces fit together. We advise clients that in order to have an effective estate plan, the initial client interview is one of the most important parts of the process.
Misconception #15 involves Internet Wills, or "pre-packaged" programs that enable you to fill in the blanks without the advice of counsel. These can work some of the time; however, if your "simple" estate plan turns out to be not as simple as you might have thought, the results can be devastating, and emotionally draining to your family and your heirs.
For example, you need to consider what would happen in the event your primary beneficiaries predecease you, due to natural causes or as a result of a catastrophic accident. Would you want your estate to pass to your "intestate heirs", who are determined by the state where you live, or do you want to designate certain other persons and/or your favorite charities to share in the distribution of your remaining estate in this situation? Have you named an alternate executor, trustee and/or guardian of the person of your minor children? Should you consider a corporate fiduciary, such as a bank, brokerage company or trust company, to serve as your executor or trustee upon your death? How about your "personal property", such as jewelry, antiques, collections, furniture, and other such items, the distribution of which can cause great emotional stress to your heirs after you have died. There are a myriad of questions which need to be addressed.
Again, "estate planning" is for everyone, not just the wealthy! I look forward to expanding upon the remaining 14 misconceptions in future issues of our newsletter.
