Estate Planning FAQs
Many people have some VERY wrong ideas about estate planning. And that’s understandable if you get your information from sources that, while well intentioned, may be simply repeating hearsay. These sources can usually include friends, neighbors, relatives, television, articles and, yes, even the internet. (I read it on the internet so it must be true, right?)
Here are some of these misconceptions and an attempt to set the record straight.
1. I have a will so my family will avoid probate when I die. Actually, a will only works if your property goes through probate after you die. Probate is the legal process through which the court makes sure that after your death your debts are paid, that your will is legally valid, and then that your assets are distributed according to the instructions in your will. So that rather than avoiding probate, a will is really a set of instructions to the probate court and only works if there is a probate.
2. I don’t have a will, so my family will not have to go through probate. If you own assets in your name and you don’t have a will, the state in which you live has one for you—and it is enforced through the probate court. The big problem, however, is that the state’s will won’t be what you would have wanted. For example, in many states if you are married and have children, each will receive a share of your estate. This often results in your spouse not having enough to live on and, if the children are minors, the court will set up expensive guardianships for their inheritances. Also, the laws in most states allow for the inheritance of property only by bloodline or marriage, so an unmarried partner or close friend would not receive anything.
3. If I become incapacitated, my executor will be able to handle my financial affairs. Unfortunately, any instructions in your will are ignored if you become incapacitated. That’s because a will can only go into effect after you die; it is of no use before then. Unless you make other arrangements, the court will likely appoint an individual to take control of your assets and your care if you become unable to conduct business due to incapacity. After appointment of this individual or individuals, commonly referred to as a conservator or guardian, the court will continue to supervise the actions of the conservator or guardian.
4. Joint ownership is a good way to avoid probate. It is true that joint ownership with right of survivorship (the most commonly used form of joint ownership) allows the jointly owned asset to transfer automatically to the other joint owner when one owner dies, without probate. However, if both owners die at the same time or if the surviving owner does not add a new joint owner before he/she dies, the asset will have to go through probate before it can go to the heirs. So, in most cases, joint ownership merely postpones probate.
5. I don’t need to do any estate planning because I own much less than the federal estate tax exemption. Don’t confuse estate planning with estate tax planning. Estate planning is about making sure your assets will go to the people you want to have them with the least amount of delay and costs. Good estate planning also includes a plan for incapacity. This is something everyone needs to do, regardless of the size of your estate. And while most people are now exempt from federal estate taxes (the exemption is above $5 million), you may need to plan for state death or inheritance taxes, which typically have a much lower exemption.