Seven "Myths" About Estate Planning

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What we think we know about wills, trusts, and estate planning can often be more dangerous than what we don't know. In this article, we will consider seven pervasive "myths" about estate matters.

DailyFinance, an AOL money and financial website, reported recently that forty-four percent of Americans don't have even basic wills, much less well thought-out estate plans.

Why not? Respondents to a poll cited a number of factors including an unwillingness to think about their own mortality and a natural tendency to procrastinate.

To this attorney, some of the most interesting poll data came in answer to questions about what respondents did know (or thought they knew) about estate planning. In one, thirteen percent of those surveyed indicated that, to their knowledge, their estates would "automatically" go to their spouses and children. (Another recent poll by lawyers.com indicated the number was closer to twenty percent).

This is interesting because it represents an estate planning "myth" in dire need of busting. The pernicious thing about such myths is that they are worse than no knowledge. Believing them causes people to take grossly inappropriate action (or none at all when action was desperately needed.)

Here, then, are seven commonly believed "myths" about inheritance and estate planning that any practitioner will tell you he or she hears on a regular basis.

1. Everything passes automatically to my spouse and children.

Not infrequent are the calls to law offices asking how much it costs to "put the house in my name" after a spouse has died. Many potential clients seem to assume the task is as easy and as "automatic" as switching over the light bill.

As alluded to above, it is not. Nothing is "automatic" about intestate estates (the term used for estates where the deceased did not leave a will). If you die without a will, your heirs will potentially have to deal with the question of whom to appoint administrator, the need to post bond, the requirement of inventory and accounting of your assets, claims of creditors, dissolving the (now defunct) family business, and so on.

Often, real estate of an intestate (known in some circles as "heir property") can languish for generations as the descendants decide how to deal with an estate. There is nothing "automatic" about inheritance.

2. The government gets it if I don't have a will.

This belief on the other extreme of the spectrum is worth mentioning because it seems to be so commonly held. As with the above myth, it is also false. Except for back taxes or in the rare case where certain property held by a financial institution is unclaimed for a number of years (an event known as "escheat"), neither the federal government nor the state will never claim your property after your death.

3. You can only gift up to $13,000 per year without paying taxes.

Gifting can be a useful part of estate planning in the hands of a capable attorney, which is why it is fortunate that myth #3 is as widely believed as it is false.

The $13,000 mark is the point at which you have to file a gift tax return with the IRS. But in most cases, that's all you're doing: reporting your gift to the government for tracking purposes. Taxation of your gifts is based on the amount you've given over a lifetime and doesn't kick in (under present law) until you've given more than $5 million in property. (Caveat: actual gift and estate taxation is a complex field; the above rule should be taken only as a general observation).

By all means, consider using gifting as part of your estate plan without too much fear your gifts will be plundered by the taxman.

4. Titling my assets and accounts with survivorship designations is sufficient estate planning.

Many an attorney can point to a probate disaster caused because an individual sought to arrange all of his or her affairs without a will. Although not all property is controlled by your will, and titling of assets is crucial, it is a necessary but not sufficient step in estate planning.

One problem is that asset titling (i.e., using joint accounts and setting up property so that it passes pursuant to "survivorship" clauses when you die) is a one-shot deal. If you title an account transfer-on-death to your children and later give birth to or adopt another, then the account stays the same, disinheriting your newest child. Similar messes are created if an account beneficiary should predecease you.

Furthermore (and just as importantly), titling assets handles your property only. It naturally cannot specify a number of things that concern your health care, end-of-life decisions, trusted fiduciaries to care for your property in the event of your incapacity, or guardians for yourself or your minor children. Believing myth #4 can, at best, leave your heirs with a great deal to sort out.

5. My son-in-law or daughter-in-law might inherit my property.

Experience shows that perhaps the majority of clients are afraid that, if their child predeceases them, the child's spouse will take the share of the estate in the child's place.

Fortunately, this myth is also mostly untrue. Even if your child includes a spouse in his or her will, that spouse will not inherit any of your estate if your child predeceases you. No need to worry about the spendthrift spouse depleting property that should have gone to your grandchildren.

Or is there? If you have minor grandchildren, even though your child-in-law (their surviving parent) will not inherit your estate, your grandchildren oftentimes will. It may be your child-in-law will be caring for the grandchildren during their minority, and if that surviving parent is a spendthrift, he or she decide that your grandchildren can wait on college while your estate is depleted to pay for their day-to-day needs.

Unfortunately, circumstances can make myth #5 partly "true." Most dedicated estate planning attorneys, however, know of ways to avoid such unfortunate results.

6. Estate planning is best done through a living trust.

Myth #6 depends upon the jurisdiction in which you live. Georgians reading this article may have heard from relatives in – say – Texas that a revocable inter-vivos trust (a "living trust") is the only way to estate plan. Despite such rumors, this is not true in Georgia, Alabama, and a smattering of other eastern states.

The difference lies principally in the nature of probate in the several states. Many states' bars (mandatory attorney associations) have set a minimum (and maximum) fee for attorneys handling probate estates of – say – three percent. This becomes quite expensive for a typical upper-middle-class estate worth perhaps $500,000. Furthermore, many states have elaborate court proceedings to ensure that probate is handled properly.

In Georgia, by contrast, there are no set attorney fees for handling a probate matter, and many individuals find they do not need a lawyer to help them navigate Georgia's comparatively simple probate process. Furthermore, the court proceedings oftentimes do not have the same elaborate bond, inventory, and accounting requirements of other, more paternalistic states.

Living trusts simply cost a good deal more than wills, so some attorneys in jurisdictions like Georgia are not at pains to debunk myth #6. But rest assured that you need not pay the large up-front attorney fees associated with myth #6 in many U.S. jurisdictions.

7. My heirs "will take care of" X.

Myth #7 simply devastates families; avoid it at all costs. Whatever your problem may be, it is almost never a good answer to simply trust your heirs to handle it without written instructions.

I recently had a client dealing with an estate in which a large amount of property was left to a daughter-in-law along with oral instructions to care for the needs of a handicapped son. Another client has three children, one of whom is financially savvy. His plan, before consulting with me, was to leave all his property to the business-minded daughter with the instruction that she give the surviving children whatever they might need, within reason.

Often, leaving your family such oral instructions is worse than leaving them no instructions at all. By what standard does one relative "take care of" others? The answer to that question almost always pits family members (even loving ones) against each other. Moreover, in the case of special-needs and handicapped relatives, sophisticated estate planning can be extremely advantageous, and a consultation with an advisor should not be avoided.

Conclusion.

As the above seven "myths" show, the greatest problem with will drafting and estate planning can be "a little knowledge."

The take away for most individuals should be to consult with a qualified attorney or certified financial planner to be sure that your loved ones don't face the double-hit of both losing you and of facing a financial dilemma after your passing.


Tanner Pittman, LLC is a regional West Georgia law firm specializing in estate services, complex litigation, and legal transactions. We maintain a practice in LaGrange, Columbus, Newnan, Peachtree City, and Metro Atlanta areas.

From the author: Tanner Pittman, LLC
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