Everyone needs to worry about estate planning, and that planning doesn’t only pertain to what happens when you die but what could happen if you end up incapacitated.
That was the word from Laurie Steiner, an attorney with Solomon, Steiner and Peck of Mayfield Heights, Ohio. Steiner debunked some of the most common estate planning myths during a recent webinar for Financial Experts Network.
Estate planning involves many issues, Steiner said. They include:
Who inherits your property.
Who handles your finances.
Who takes care of you if you are incapacitated.
Who makes medical decisions for you.
Who handles funds for a disabled minor child.
Myth #1: Estate planning is only for the rich
Steiner said the biggest myth about estate planning is that only the rich need to worry about it.
“Of course, the rich need to worry about it,” she said. “But it’s not just the rich – everybody needs to worry about estate planning. You need to plan for a lot of issues that will need to be handled. It’s more than just the will you made out when you had a new baby.
“And it’s not just about when you die. Something could happen to you before you die. You could have a physical or mental disability that means you might not be able to handle your finances anymore. And doctors can’t automatically talk to your family about your condition because of privacy laws.”
Myth #2: If I have a will, I will avoid probate
The will shows the court who is in charge of the estate and where the assets will go if you have probate, Steiner said.
“Wills don’t avoid probate – titling your assets appropriately avoids probate,” she said.
Issues with probate, she said, include:
Probate is time-consuming.
There are legal and executor fees involved.
Information about the estate is entered into the public record.
Myth #3: I need a trust to avoid probate
“A trust is one way to avoid probate” Steiner said. “But unless your estate is large or has a lot of complicated assets, there are ways to avoid probate without a trust.”
Those ways include:
Joint and survivor assets.
Transfer on death affidavits.
Beneficiary designations for individual retirement accounts, 401(k) accounts, life insurance and annuities.
Give assets away before you die.
Myth #4: I should put my house in joint and survivorship ownership with my child to avoid probate
“Many people think that when the first spouse dies, the surviving spouse should put their child on the deed,” Steiner said. But there are some issues with this plan, she said, including:
The house is now half owned by the child.
You can’t sell the house without the approval of the child or their spouse.
You can’t qualify for the tax-free sale of your personal residence on half of the sale proceeds, unless your child also qualifies.
Your child’s creditors can seize your house.
Myth #5: A will decides who inherits my IRA
The beneficiary form on IRA, life insurance and retirement accounts – and not the will – controls who inherits money, Steiner said. The will also does not control annuities, payable on death accounts, and transfer on death accounts and affadavits.
She said clients should check their beneficiary forms periodically to make sure their funds will go the correct person.
Myth #6: All I need to do is fill out beneficiary forms for my bank accounts, IRA and real estate.
Steiner said beneficiary forms can be used to avoid probate on all sorts of assets. However, some problems can arise from this. She cited a hypothetical situation in which a client has three children and each of those children has at least one child.
If one child dies before the client does, what happens to the assets?
What if one beneficiary is too young to handle funds?
If multiple children and real estate are involved, who makes decisions regarding the property?
What if a child has a creditor problem or gets divorced?
Who pays the client’s final expenses?
Myth #7: A revocable trust will protect my assets if I enter a nursing home
A revocable trust doesn’t protect your assets if you are trying to qualify for Medicaid, Steiner said. You need Medicaid planning and often an irrevocable trust to protect your assets.
Myth #8: A trust avoids probate
This is true only if you fund the trust, Steiner said. If you keep the assets in your name only, the assets still will be probated.
“You must title the assets to go into the trust immediately or title the assets in such a way that they say, ‘When I die, this goes to …’”
Myth #9: If my will says “per stirpes,” then my grandchildren will inherit my assets if my children die
This happens only if your children die before you do, Steiner said. If your children survive you, then they assets they inherit are controlled by their own documents. To ensure your grandchildren inherit your assets from your children, you must pass the assets through a “blood-line” trust.
Myth #10: A will or trust are the only estate planning documents I need
Clients need more than a will or trust, Steiner said. Among the most crucial documents they need are a financial power of attorney, a health care power of attorney and a living will declaration.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.