Estate Planning Awareness Week: Don't Fall Victim to These Common Myths

Next week is Estate Planning Awareness Week (October 18–24, 2021). This month’s newsletter is geared toward making you aware of several common estate planning myths. Left unaddressed, these myths can create serious trouble for your surviving loved ones, often leading to intrafamily conflict, permanently damaged relationships, and lengthy and expensive court battles.

estate planning myths

Myth #1: I did my estate plan a couple of years ago. I’m done!

If you have established an estate plan with an experienced estate planning attorney, then you are way ahead of most people! However, life moves quickly, and even a couple of years can make a significant impact on whether your estate plan remains relevant and effective in achieving your goals:

  • Children can get married and have children of their own
  • Those named in your estate planning documents can move out of state, making them unable to handle their responsibilities when needed
  • Your relationships with your chosen fiduciaries or beneficiaries can change or become complicated
  • Your beneficiaries can develop harmful addictions, marry financially exploitative spouses, or run into financial difficulties of their own
  • Your spouse could die or you could get divorced
  • The amount and types of property that you own can change
  • Changes in the law can cause unintended tax or other consequences

Any one of the above circumstances may be a good reason to meet with your estate planning lawyer again to determine whether changes should be made to your estate plan. In many cases, even a quick phone call to discuss any changes with your lawyer is advisable. Making regular updates to your estate plan is always advisable.

It is also essential to understand that some estate planning documents like your power of attorney or healthcare directive can, over time, become less effective from the perspective of certain financial institutions, business entities, or healthcare providers. If your circumstances change, it can be beneficial to review, update, and re-execute your estate planning documents to ensure they keep up with your needs.

Beyond the considerations above, a well-rounded estate plan requires a number of steps to ensure that the estate plan will work effectively when needed.

First, if you have a trust, have you funded it? Funding your trust means you have coordinated the ownership and beneficiary designations of your accounts and property to work with the trust. For real estate, a deed must have been recorded with the proper government recorder’s office. Most bank and brokerage accounts should be titled in the name of the trust if you intend that your trustee will control those accounts should something happen to you.

Second, have you verified that the beneficiary designations on your retirement accounts and insurance policies name the correct people on your trust? Life insurance policies should usually name the trust as beneficiary. Retirement plans may name a trust as a beneficiary, but be careful! Naming a trust as the beneficiary of an individual retirement account or 401(k) has significant tax consequences and may not be advisable in all situations. Speak with your tax advisor before changing the beneficiary designations on your retirement accounts.

Third, have you shared copies of your medical power of attorney and healthcare directive with your doctor and local hospital? This can prevent family members from needing to dig through your documents should you have a healthcare issue in the future.

Fourth, in many states, a financial power of attorney document that names an agent to act on your behalf must be accompanied by a signed acceptance document from the agent before it can be used. If this step has not been taken, your estate plan may not be complete.

Fifth, written notes do not guarantee that misunderstandings will not arise among your loved ones or beneficiaries. After documenting your wishes, you should talk with your loved ones to help them understand the plan you have put in place as well as the roles you want them to fulfill. Having open, honest communication with those individuals involved in your estate plan will minimize the chances for miscommunication and hurt feelings.

Myth #2: Avoiding taxes is the only reason to create an estate plan

It can be easy to dismiss the need for an estate plan considering today’s historically high estate tax exemption ($11.7 million per person in 2021). The majority of Americans do not need to worry about estate taxes.[1] However, tax avoidance is only one of many goals of estate planning, and in many cases it is not the most important goal. Instead, planning for the orderly passing of your treasured heirlooms to avoid family discord may be far more important than tax planning in the long run. Alternatively, you may have children who are struggling financially or with substance abuse challenges, are in a rocky marriage, or work in high-liability professions. As a result, it may be crucial for you to ensure that whatever inheritance is left to those children is protected from loss to lawsuits, creditors, or divorcing spouses.

Myth #3: My spouse will automatically get everything when I die

This is another myth that is partially true but can lead to unfortunate conflicts and misunderstandings among family members. Under most state laws, if you are married and pass away, your spouse will inherit your property. Intestacy laws, the default laws that exist to divide up a deceased person’s property if they have never made a will or a trust, typically allow the surviving spouse to inherit 100 percent of the deceased spouse’s property. But in many states, if the surviving spouse is not the biological parent of one or more of the deceased spouse’s children, then those children will typically have a right to some percentage of their deceased parent’s property. In many states, that can be as much as 50 percent. As a result, your spouse may be unpleasantly surprised shortly after the funeral by your children from another relationship demanding their share of the estate.

Myth #4: A will avoids probate

A shockingly common misconception is that having a will prevents the need for probate. In fact, the opposite is true. For a will to be effective after your death, it must be submitted to the court to prove its validity. Only after the probate court has verified that the will is valid can the individual named in the will (the executor or personal representative) distribute the decedent’s money and property during the probate process. People often confuse the benefits of a will with those of a trust. Trusts can avoid probate, but only if the trustmaker names the trust as owner of the accounts and property during the trustmaker’s life or as the beneficiary of the accounts and property upon the trustmaker’s death.

What You Can Do to Be Prepared

Understanding these myths can help you identify those areas of your estate plan that require attention. Taking these essential steps to ensure that your estate plan is complete is crucial to its success. As your estate planning professionals, we are here to help you think through these challenges, avoid mistakes, and complete the necessary paperwork. Give us a call today -- we are always available to assist you in this process.

San Clemente Estate Law, P.C.

Jennifer Elliott, Attorney at Law

Jennifer Elliott, Attorney at Law is an estate planning and probate lawyer in San Clemente. The firm, San Clemente Estate Law, provides probate services for decedent's estates in Orange County and San Bernardino County as well as estate planning to clients throughout California.