The Trust & Estate Planning Attorneys at Friday, Eldredge & Clark have compiled a list of the most common myths in their industry so clients can address these matters in a timely manner.
Busting the Most Common Estate Planning Myths
MYTH - If I have a will, my estate will avoid probate administration.
A will merely allows you to determine who controls your estate (executor) and to whom your assets are to be distributed. When you die without a will, the Arkansas laws of intestate succession dictate the foregoing decisions. In both cases, however, assets owned in your individual name must be probated for the executor to be legally appointed to pay creditors and to transfer your assets to the beneficiaries.
MYTH - I’ve executed my revocable trust, so I’m probate-proof.
Establishing a revocable trust in and of itself does not avoid probate. However, to the extent you retitle your assets in the name of your revocable trust, such assets will avoid probate.
MYTH - Assets owned by my revocable trust are protected from the claims of creditors.
Implementing a revocable trust is not asset protection. A revocable trust does not shield the assets owned by the trust from the claims of creditors because you retain the right to revoke the trust, you are the trustee, and it is for your sole benefit.
MYTH – I have one of my children as a joint owner of my checking account. When I die, my checking account will be divided among ALL my children as provided in my will.
Any asset jointly owned will pass to the surviving joint owner by operation of law and will not be subject to probate administration. Thus, the terms of the will are irrelevant in determining the distribution of the joint checking account.
MYTH – My beneficiaries will have to pay income tax on the life insurance they receive after my death.
Except in very limited circumstances, the beneficiaries of your life insurance proceeds do not have to pay income tax thereon (although the value of your life insurance policy is included in your taxable estate for estate tax purposes).
MYTH – Since my child receives government benefits, I have not included him or her in my estate planning documents.
Although an individual receiving government benefits such as Medicaid cannot own in excess of $2,000 in assets (with some exceptions), you can establish a special needs trust for the benefit of such child, which will not disqualify him or her from government benefits. This special needs trust can either be established during your lifetime or at your death. The special needs trust provides that the trustee can expend income and principal to improve the child’s quality of life but contains other provisions that prevents the trust assets from counting toward the $2,000 asset limitation.
MYTH – I’m young so I don’t need estate planning documents.
Young people die unexpectedly every day, and their assets should be transferred according to their wishes. Further, an estate plan includes more than a will or revocable trust. It also includes documents nominating the person(s) you want to make financial and healthcare decisions in the event you are unable to make such decisions on your own behalf.
MYTH – Once my estate planning documents are signed, I don’t need to see my estate planning attorney again.
Although implementing your estate plan is the first step, such plan needs to be monitored and reviewed over the years to ensure that it always complies with your wishes and is modified to accommodate any change in circumstances. Such changes include divorce, remarriage, additional children, step-children, change in the needs of a beneficiary, death of a beneficiary, inheritance and buying or selling a family business. Even if you have no change in circumstances, you may have changed your mind regarding certain dispositions. Finally, even if your life circumstances and wishes haven’t changed, you may need to update your estate plan because of changes in the law.
For more information or if you have further questions about trust and estate planning, please contact one of our Trust & Estate Planning Attorneys. Click here for more about this practice group and a list of attorneys.
This news alert is created by the attorneys in Trust & Estate Planning Practice Group at Friday, Eldredge & Clark, LLP. The information provided is not a substitute for legal advice and should be considered for general guidance only. Please contact one of our attorneys for specific legal advice regarding this matter.