The 5 Most Common Estate Planning Myths
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Estate planning is a crucial component of financial preparation for many individuals, as it enables their wealth to have a lasting and meaningful impact on their loved ones. While estate planning is relatively uncomplicated, uncertainty with some aspects of the process has generated misunderstandings about what it involves. To eliminate your confusion about protecting your assets, learn the reality of the following estate planning fallacies.
1) Estate Protection Is Only for the Very Wealthy
Although wealthier individuals may have more complex estate needs, they are not the only people who reap advantages from planning. In truth, those who own any amount of real property, regardless of its size or value, should consider establishing an estate plan. Some specific reasons you may want an estate plan include:
- Family members or other loved ones depend on you for financial support.
- You want to ensure your assets are distributed according to your wishes following your death or incapacity (also referred to as heritage wealth planning).
- You have heirlooms, like furniture pieces or jewelry, which you want to assign to family members when you pass away.
- You need strategies to mitigate the estate and inheritance tax liability that beneficiaries may face to ensure they receive maximum benefits.
2) You Only Need to Plan Your Estate for Death
Many people prepare their assets and estate for when they die, but death is not the only reason to contemplate estate planning. A severe injury may leave you permanently incapacitated and your estate exposed to risk. With proper estate planning, you can name various agents, such as a trustee or healthcare surrogate, to ensure your wishes are met if you cannot make these decisions yourself.
As hard as it is to confront, death can strike at any moment — not just during old age. If you are a parent with young children, for instance, an estate plan allows you to appoint a trusted family member or friend to take care of them if you die unexpectedly.
3) Having a Will Makes Estate Planning Unnecessary
In a will, a person designates an executor, or personal representative, to ensure their assets are allocated according to their provisions. While wills share some features with estate planning, some assets fall outside their terms, such as retirement accounts and life insurance.
Additionally, wills are not the only files involved in protecting your assets. Other important estate planning documents include investment and bank statements, insurance policies, tax returns, and trust records. Thorough estate planning not only accounts for all this information, but it also entails regular reviews of the documents to make adjustments based on your fluctuating situation and needs, new developments in tax law, and other changes.
4) Probate Is Not Worth the Stress
Probate is the legal process of authenticating a will after a person dies. Most people are familiar with the trope popularized in books and films of heirs fighting over their deceased loved one’s estate and assets. No doubt, these depictions are based on some truth, but not all families will battle over inherited wealth. In many cases, people want to honor their relative’s wishes.
Even if disputes arise during probate, they are no different than any other family disagreement. In other words, the process is not as intimidating as it initially appears. Furthermore, probate tends to be much simpler and less expensive than it was in the past.
More importantly, neglecting to plan your estate and draft a will means your assets become the state’s responsibility when you pass away. The state will distribute your wealth as they see fit, which may not match your wishes. Overall, although probate can be a painful process, it prevents the uncertainty of leaving loved ones without a will to guide asset allocation.
5) Taxes Will Drop Your Estate’s Value
In general, estate taxes are high, but not everyone must pay them. The federal government only levies estate taxes on those earning millions of dollars, and many state governments do not impose them at all. Even for high-net-worth individuals, there are some exceptions. For instance, charitable donations to non-profit organizations are not considered taxable estate, nor are assets that you leave for your spouse.
If your estate is large enough that federal or state estate taxes are inevitable, meeting with an estate planning attorney or financial advisor who has experience assisting high-net-worth individuals is advantageous. These professionals can offer tax reduction strategies that limit your tax liability and maximize the resources you have to pass on to individuals and organizations.
Gain Estate Planning Guidance from Park Place Financial
Individuals who want to move past these estate planning myths and obtain reliable help with protecting their assets can trust the certified financial planners at Park Place Financial. Our in-house estate planning specialist will work with you to find the best strategies for your specific financial situation, guiding you through numerous aspects of the process, from the creation of wills to new developments in estate law. Contact us today to learn more about estate protection or attain your complimentary financial checkup.