When the topic of estate planning comes up, many people shy away from it. Let’s face it…no one wants to think about what happens when they’re gone. For this reason, there are a number of common misconceptions that exist when it comes to estate planning. The confusion can cause mistakes or omissions in planning and can be very costly and detrimental to your family. Let’s explore and debunk some of most common myths.

1. Only wealthy families need estate planning. This myth comes from the fact that many financial advisors focus on the estate tax which (in 2019) may not kick in until your taxable estate exceeds $11,400,000. Many would consider those with assets of that size to be wealthy. The reality is estate planning applies to everyone and goes way beyond the estate tax itself. It’s about ensuring your finances are taken care of and your health care directives are adhered to if you’re incapacitated. It’s about planning for loved ones that depend on you financially or for care once you’re gone. If you own property and assets of any size and have a spouse or other dependents, an estate plan is imperative to protecting their future income needs.
2. I’m too young for estate planning. No one is too young for planning. Life can change at any time and if you wait too long to get your estate plan in order, it could be too late.
3. If I don’t have a will, the government will get my assets when I die. Surprisingly this myth does not motivate more people to create estate plans. If you die without a will or trust, the laws of your resident state will determine where your assets go. The laws are different in each state. In some states, the surviving spouse will receive everything. In other states, your spouse must share your assets with lineal descendants. Generally, if you do not have a will or trust at death, the assets will not go to any non-family. Only in very rare instances when you have no living relatives, could your property go to the state.
4. If I have a will, I don’t have to worry about probate. While a will provides guidance on your wishes, it doesn’t avoid the probate process. Probate is the court supervised process of authenticating a will, locating and determining the value of the decedent’s assets, paying any final bills or liabilities, and distributing the remainder of the estate to the rightful beneficiaries. A will is public information and could be contested in court, leading to more time and cost
5. Trusts are the only way to avoid probate. Trusts are absolutely a valuable tool in estate planning and are one way to potentially avoid probate. Jointly owned property generally passes to the other owner(s) without going through probate (unless it’s “tenancy in common”). Also life insurance, annuities, and assets in retirement plans skip probate as long as one of the named beneficiaries is still living. It is very important to ensure your beneficiary designations are updated.
6. If my estate is less than the federal exemption amount, I won’t pay estate tax. This could be true, however don’t forget about the state estate tax. Twelve states currently impose a state estate or inheritance tax and just one state (Connecticut) imposes a gift tax. Other states, such as California, are proposing to institute an estate tax. Often the exemption amount is lower for the states. Check out our blog, California Proposes a State Gift and Estate Tax Beginning 2021. For example, the Massachusetts exemption amount is only $1M and once you’re over that amount, all of the estate is taxable in the state. Also, the Federal exemption amount is scheduled to revert back to roughly $5,000,000 in 2026. You may be covered by the Federal exemption today, but if your assets continue to grow and the exemption sunsets in 2026, your estate could be subject to transfer tax.

There are just some of the misconceptions we see surrounding estate planning. The best way to ensure you are on track is to speak with a member of our Private Client Services team.