4 Estate Planning Myths That Refuse To DieRon Carson
Estate planning remains one of the most misunderstood areas of planning. Over the years, I’ve met with people who “only needed a financial plan, not an estate plan” or “didn’t need a financial plan, just some help with estate planning.” I’ve also met with people who labeled themselves too young (or too old) to engage in estate planning. What they were all missing is that estate planning is an integral part of a comprehensive financial plan, not something that sits outside of it.
That’s because estate planning is part of life planning. It’s about defining and living out your legacy during your lifetime, enabling you to enjoy the impact it has on the people and organizations you support; ensuring loved ones who depend on your income are protected in the event of your incapacity or death; and ensuring your own wishes and preferences are communicated and can be met should you require long-term care, among other goals. It helps to answer important questions, including: Who will have the legal authority to act on your behalf if you’re unable to do so during your lifetime, whether that’s managing your assets or important healthcare decisions? And who is going to be tasked with making sure it happens?
To help clarify the role of estate planning in the financial planning process, it’s important to debunk some of the most common myths, beginning with: Who needs an estate plan?
MYTH #1: Estate planning is only for the high net worth.
Often, people believe that estate planning only benefits the uber `wealthy, but nothing could be further from the truth. If you own property and assets or have loved ones that depend on you to provide for their income or care, you have an estate and need a plan—regardless of your estate size. Estate planning is something everyone needs to engage in regardless of age, estate size, or marital status. If you have a bank account, investments, a car, home or other property—you have an estate. More importantly, if you have a spouse, minor children, or other dependents, an estate plan is critical for protecting their interests and their future income needs.
An estate plan can help you accomplish these and other important goals:
Legacy and incapacity planning are two areas of planning that encompass far more than managing your assets during or after your lifetime. Just like your goals, your legacy is unique to you and your family. While it includes important charitable planning goals and gifting strategies, it goes well beyond the monetary aspects to include passing down the values, experiences, hard work and memories that define your life and are important to you and your family in a way that’s meaningful to you.
Incapacity planning helps you prepare for unexpected events at every stage of your life from naming a guardian for your minor children, to who will manage your affairs if you’re no longer able to do so yourself, to the type of care you will you receive and who will oversee your care.
MYTH #3: A will can oversee the distribution of all of my assets.
A will is a legal document that instructs how your property will be distributed after your death. It allows you to name an executor, who is your personal representative charged with overseeing the distribution of your property and shepherding it through the probate process. Probate is the court process that’s required to validate your will and transfer your assets.
However, certain assets may sit outside of your will. These include life insurance policies or qualified retirement accounts (401(k)s, IRAs, etc.) that have a beneficiary designation, as well as assets or accounts with a pay-on-death (POD) or a transfer-on-death (TOD) designation. These assets transfer directly to the named beneficiaries and are not subject to probate.
This is why it’s so important to review your account beneficiary designations annually or whenever changes in your life occur. For example, if you divorce and remarry and fail to update the beneficiary designation on your IRA account to your new spouse, your ex-spouse would receive those assets upon your death. Even if your will and/or trust names your current spouse as the beneficiary or co-trustee, since these assets sit outside of your will or a trust, they are not governed by those documents.
In addition to a will, it’s important to work with an estate attorney to draw up other important legal documents to protect your interests and the interest of your dependents and/or heirs. These include:
Planning is never a “once and done” proposition. Your life, preferences and goals change over time, and may be also be impacted by outside influences, such as the financial markets, tax law changes and economic events. What if you marry or divorce, welcome a new child or grandchild, your minor children become adults, you move to another state, or experience the death of a spouse? All of these changes need to be reflected in your estate and legacy planning. That’s why it’s important to periodically review and update your estate planning documents, including your beneficiary designations and how your various accounts are titled.
Recently, the estate tax exclusion more than doubled under the Tax Cuts and Jobs Act of 2017. You want to make sure your plan addresses these changes and that you and your financial, tax and legal advisors remain abreast of any subsequent changes. This will be very important over the next few years since the current federal estate tax law is set to expire at the end of 2025. You also want to pay close attention to any state laws that may impact your planning if you reside in a state that imposes a separate estate or inheritance tax.
Communication is key
One of the most important steps in the estate and legacy planning process is communication. It can mean the difference between loved ones hoping they did right by you and knowing they carried out your wishes. The more you share, the easier it is for everyone involved. That includes sharing the location of the original copies of your legal documents, where you do your banking and investing, who holds your mortgage and credit card accounts, and where you store important passwords with the trusted individual(s) you have appointed as your executor and/or successor trustee. This is critical information for those you’ve appointed to act on your behalf in the event of your incapacitation or death.
I am founder and CEO of Inc. 5000 firm Carson Group, Barron’s Hall-of-Fame wealth advisor, one of Forbes top wealth advisors in America, radio talk show host, and author of The Sustainable Edge.
Jeff Sodoma, MPA, Esq. is a lawyer based in Virginia Beach, Virginia
Hello, there! Welcome to my blog. I will use this blog as a platform for my writing. I will write about topics in the legal world, certainly, as well as everything else under the sun, because I have many interests (and viewpoints). All views expressed in this blog, unless otherwise noted, are mine alone. One of my interests is music--my wife believes that I should go on "Beat Shazam" because I know so many songs--and I will be, from time to time, analyzing song lyrics and how they relate to the legal world.