There are certain myths that circulate about aspects of the estate planning process. If you buy into them, you can make mistakes that yield unintended negative consequences.
With this in mind, we will look at four these myths here to raise awareness.
Your family will receive their inheritances right after you pass away if you have a will.
This is an assumption that people make, but in fact, it is simply not the case. When you draw up a will, you name an executor in the document to take care of the hands-on administration tasks after your passing.
The executor cannot act independently without any supervision. A will is admitted to probate, and the probate court provides supervision while the estate is being administered.
No inheritances are distributed until the estate has been probated and closed by the court. The exact duration of the process will depend on the circumstances, but it will typically take about eight months, and complicated cases can be stalled in probate for much longer periods of time.
Trusts are only used by the wealthy.
There are many different types of trusts, and some of them are used by high-net-worth individuals with multi-generational wealth and estate tax liability. This being stated, there are other trusts that can be quite useful for people of relatively ordinary means.
The revocable living trust is an estate planning tool that is more effective than a simple will in a number of ways. First, the distributions to the beneficiaries are not subject to probate, and this will simplify and streamline the administration process.
Inheritors that are named in a will get lump sum inheritances all at once with no asset protection or spending safeguards. When you have a living trust, you can dictate the terms of the distributions, and the principal would not be accessible to the beneficiary’s creditors.
In addition to the living trust, there are other trusts that can satisfy different objectives. For example, you could use a qualified terminable interest property trust to protect your children’s inheritances if you are getting remarried.
The supplemental needs trust can be utilized to make a loved one with a disability more comfortable without impacting need-based government benefits. Speaking of government benefits, many elders seek Medicaid eligibility because it will pay for nursing home care.
You could convey assets into an irrevocable, income only Medicaid trust to develop a financial profile that will lead to Medicaid eligibility. These are a handful of the reasons why people that are not multimillionaires use trusts, but there are others.
The state takes care of everything if you die without a will.
If you pass away without a will or trust, the probate court would supervise during the estate administration phase, so there would be government involvement. A personal representative would be appointed by the court to administer the estate, and final debts would be paid.
Ultimately, the intestate succession laws would be used to determine the way that the assets would be distributed.
Under these circumstances, the result may not be consistent with your own true wishes. Plus, in a general sense, the whole matter would be unnecessarily drawn out, potentially contentious, and complicated.
DIY estate planning is the best way to go.
There are websites that sell boilerplate legal documents, including wills. In fairness, you could potentially execute a legally binding document on your own using some type of download or worksheet.
This being stated, when you plan your estate, you are arranging for the distribution of your legacy to the people that you love the most. Is this something that should be hastily handled in a bargain-basement manner?
A will is not always the best choice as an asset transfer vehicle, and there are other elements that a layperson would probably overlook. Some years ago, Consumer Reports advised against DIY estate planning, and you may want to heed their advice.
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