It is often said that one’s failure to plan is his plan to fail, yet the majority of Americans fail to plan for the protection of the people and things they love most. According to the AARP, 60% of American adults don’t have a basic estate plan. Accepting the fact that one day you’re going to die is understandably difficult and therefore, many avoid both the conversation as well as the planning. However, in order to protect your loved ones and assets, it is important not only to have the conversation but to create an estate plan that reflects your wishes and protects your loved ones from the additional stress and turmoil that often occur when you become ill or die.
While not wanting to accept our mortality may be one reason that only 40% of American adults have a will, below are some Estate Planning myths that also contribute to the low percentage.
“I don’t have an estate so I don’t need an estate plan.”
Often times it is believed that if a person is not wealthy, he doesn’t have an “estate” and therefore, doesn’t need an estate plan. However, with few exceptions, most adults have an estate. If you own a car, real estate, bank accounts, investments, retirement accounts, life insurance and/or any personal belongings, you have an estate. If you want to protect your estate and control the distribution of your assets when you die, you need an estate plan.
“Estate Planning is for the wealthy.”
The myth that estate planning is solely for the wealthy likely stems from the premise that an estate plan consists solely of a will and its sole purpose is to distribute assets. While distributing assets is one function of a will, it is not the only function of a will. A will also appoints a personal representative to manage your estate and a guardian to care for minor children. Without a will, the court appoints a personal representative and a guardian, who may not be the persons that you might have chosen. Further, although a will is an essential component, it is not the only component of an estate plan. In addition to a will, a basic estate plan consists of a medical directive and a power of attorney.
A medical directive memorializes your healthcare desires in the event that you become ill and lack the capacity to make medical decisions on your own behalf. While anyone, despite their socioeconomic status, may suffer health issues, those with limited resources are at a greater risk because of the lack of access to medical care and healthier lifestyle options i.e. healthier meal options, fitness centers, trainers, specialty care, etc. Without a medical directive, your loved ones may be left to guess what medical care you do or do not want. Often times, family members are unable to come to a unanimous decision which often results in lengthy and costly litigation, leaving the court to make medical care decisions on your behalf.
A power of attorney grants an agent or attorney-in-fact the legal authority to act on your behalf if you are unable to do so. A power of attorney is typically used to grant an agent the authority to make financial decisions, however, it may be used for other purposes. Without a valid power of attorney, your financial decisions may be decided by a court appointed agent that you may not know or would not have appointed and/or someone who may make decisions that are not in your best interest.
“I’m married so my spouse will inherit my entire estate.”
In some states, if you die without a will, and have no surviving parents and neither you nor your spouse has surviving kids born from other relationships, the surviving spouse may inherit your entire estate. If you have surviving parents or you or your spouse has surviving kids born from other relationships, the surviving spouse only gets a statutory amount plus a fraction of any balance of the estate.
“I named beneficiaries on my accounts so I don’t need an estate plan.”
While naming beneficiaries on the accounts is a simple process and avoids probate, there are risks in doing so. Presumably, your named beneficiaries are the people you want to get the money. However, if a beneficiary receives money outright, there’s a risk of the money being loss to creditors or predators. For example, if your surviving spouse receives a large sum of money, he/she could be disqualified from receiving government benefits, such as Medicaid. If you leave the money to your child and he/she gets divorced, the spouse could be entitled to some of the money. Imagine leaving money to your free-spirited son who decides to quit his career to travel the world “in search of himself. It’s not likely how you might have imagined or expected the money to be used. However, these are but a few of the risks of simply designating beneficiaries.
Estate planning is complex and it is unlikely that a simple solution such as a beneficiary designation will get you the desired results.
“I have everything written down so I don’t need an estate plan.”
An unwitnessed, handwritten document signed by the testator intended to be used as a will is called a holographic will. Holographic wills are not recognized as valid legal documents in about half the states. However, even if your state recognizes it as a valid legal instrument, holographic wills can raise several issues, to include, but not limited to: whether the testator intended the informal writing to serve as his final testamentary intent; additional handwritten pages can be integrated into a single holographic will or into a valid attested will; claims of forgery and discovery and disclosure of the holographic will after the testator’s estate has been settled. Because a holographic will lacks the formalities required of a will, there’s an increased likelihood of its validity being challenged, which could result in lengthy and expensive litigation.
These are but a few of the many estate planning myths. To discover what you need to know about estate planning to protect your loved ones and assets, join us for one of our estate planning workshops. To reserve your spot, click here or contact Reed Sherman Law Firm at 775-4KEMLIA.
