Estate planning is already confusing and worrisome for a wealth of Americans. They shouldn’t be worried or confused that they don’t have enough wealth to form an estate plan. That’s one myth that needs some clarification.
Other myths that will be busted below, are that a will can be used to distribute all your assets, and that estate plans don’t need to be revisited once they’re finalized.
Let’s start with myth number one.
Estate planning is only valuable for the rich and wealthy
False. If you own a business, any property, and assets or have loved ones that depend on your income for care or a myriad of other reasons, you can benefit from an estate plan. An “estate” includes a bank account, investments, a car, home, business or other property. Estate plans are beneficial and often critical to designate the correct care for your spouse, minor children or other dependents and beneficiaries. Crafting an estate plan can also benefit the following situation:
- Naming a guardian for your children
- Naming those who will receive your property following your death
- Transferring property to your beneficiaries or organizations you’ve listed in your plan
- Manage tax savings and exposure
- Assign a trustee for your trust or executor of your will, who will act as your legal proxy to distribute your property as your wishes dictate
- The possibility of avoiding probate, which is the process of a court overseeing the validity of your will and thrusting it into the public eye
- Documenting your health-care directives (stating the type of treatment you wish to receive based on circumstantial health issues)
- dictate your own funeral arrangements and how the associated expenses should be paid
Myth number two: A will can be used to distribute all your assets
Once again, this is false. A will instructs how your property should be allocated after your death. This is done through your legal representative, an executor, who oversees your will and distributes the property according to your wishes. An executor also guides the will through the probate process. If you wish to keep your estate plan fully private, pursue a trust instead of a will, but be aware that both have separate advantages and disadvantages.
There are some assets that don’t adhere to the rules of a will, like life insurance policies, 401(K)s, IRA’s, other qualified retirement accounts and accounts that contain pay-on-death (POD) or transfer-on-death classification (TOD.) Any of these assets will be automatically transferred to your designated beneficiary no matter the circumstance. If you don’t annually review your beneficiary designations, especially if a major life event occurs (death or divorce) and pass away, your ex-spouse would receive the assets that could have gone to your current spouse
Myth number three: Once my estate plan is finalized, I don’t need to revisit it
You guessed it, this myth is busted. Planning and review should be a lifelong process. Due to external and internal influences, life events and goals change over time. You could get married or divorced, have an unexpected child, must care for an elderly parent or disabled child or there could be changes in the financial markets or tax law.
A certainty in life is uncertainty in life’s events. Therefore, periodic reviews of your estate plan are necessary.