Estate planning is complicated, and there are a lot of misconceptions and myths floating around out there. If you are a parent, or have important loved ones you want to provide for, it is time to start planning! Before you get started, let’s bust some of the most common estate planning myths.

I’m not wealthy enough to worry about estate planning

This is a common misconception that managing your estate tax liability is the only reason for estate planning. Estate tax really is only a concern for the ultra-wealthy, and the lawyers and advisors that work with them. However, estate planning includes many more important factors that can affect anyone’s life. When you draft your estate planning documents, you will outline who will make financial decisions for you should you become incapacitated. You will determine who will act as guardian should you have young children, and convey your wishes in terms of healthcare should you be unable to make those decisions yourself.

Estate planning is an important step in securing your future, and should be a project for anyone and everyone who wants to have a say in these important decisions.

 

It’s too early to begin estate planning

It is never too early to begin estate planning, particularly if you have young children. If you wait until having an estate plan is absolutely necessary, it will probably be too late. Even if your assets are limited, there are options for creating a simple will and outlining your wishes for what happens to those assets should you become incapacitated or pass away.

 

I don’t need a lawyer at any step in the estate planning process

Technically you do not need an attorney. But even if you decide to draft the estate planning documents yourself, it is best practice to have a qualified attorney look them over. Attorneys are trained to catch mistakes and understand nuances that you may have missed, and can give you advice if you are struggling with a particular element of your plan. Ask for referrals from family or friends, or contact your local bar association to find an attorney. Your workplace may also provide these services.

 

Everything I own will go to the state if I die without a will

Each state has different laws about who would receive your assets should you pass away without a will. While this process will be administered by the state, they will select a representative to distribute your assets to your spouse, domestic partner, or the next closest surviving relative.

Wisconsin state law follows this order of inheritance: spouse, children, parents, siblings, nieces and nephews, grandparents, and descendants of grandparents. If you have no surviving relatives, your assets will go to the state school fund.

It is in your best interest to create a will, particularly if you have young children. This gives you the power to make the important decision of who will act as their guardian should you pass away.

 

Having a will can help me avoid probate

Probate, or a situation in which a court or courts decides who will inherit your assets, can be a long and costly process. Unfortunately, having a will does not necessarily mean probate can be avoided altogether. Since a will is a public document, it may be contested in court, which would mean additional time and cost. If you hold real estate in more than one state, each property may be subject to the probate laws of that state.

I need to draft a trust to avoid probate

Many people choose to draft a trust to avoid probate, but this may not be necessary. Life insurance, retirement holdings, and annuities will avoid probate if you have at least one living beneficiary listed on these accounts. Any jointly-owned property will pass on to the other owner, unless it is listed as “tenancy in common.” You may also be able to add beneficiaries to certain bank accounts (depending on the laws of your state), which are “payable on death,” and a “transfer on death” to real estate, vehicles, and brokerage accounts. If you have what your state deems a “small estate,” which in some cases can actually be quite big, you may have access to methods to speed up the probate process or even skip it all together.

If you do decide to draft a trust, you will most likely need to hire an attorney.

 

Having a trust will help me avoid estate tax

Usually, a trust itself will not help you avoid estate tax. However, you may be able to use a trust as part of a larger strategy to reduce or eliminate your estate tax liability. Consult a qualified attorney for advice on this process.

If I make gifts to someone of over $15k, I will have to pay gift tax

If you make gifts of $15k or more to someone over the course of a year, it will simply reduce the lifetime gift and estate tax exclusion amount you are subject to. When you use up the whole exclusion amount, you will be subject to gift tax, but not before. It is best to try and stay within the $15k annual exclusion amount, though, to avoid having to file a gift tax return and keeping record of how much you’ve reduced your exclusion amount.

One exception is gifts made to spouses, who will not have to pay gift tax.

Estate planning can be complicated, and this list does not contain every misconception or question out there. As a Milwaukee estate planning attorney, I am here to help you get started planning for your future. Give me a call today.