Part I of this two-part series debunked five common estate planning myths: (1) estate planning is only for the wealthy, (2) you don’t need a will if you tell someone what you want before death, (3) all assets are distributed according to the will, (4) young people do not need to worry about estate planning, and (5) a “simple will” is good enough. In this article, you will learn five more myths about estate planning and tips for how to avoid them.
MYTH 1: “A durable power of attorney gives my chosen person full authority to take control of and administer my estate.”
A durable power of attorney is an excellent tool that allows another person (or multiple people) to legally conduct certain business for another. The terms of this tool can be modified to allow the authorized person (or multiple people) to act either immediately or upon the maker’s incapacity. However, the power of attorney ends with the maker’s death and all powers granted in the power of attorney expire. Control over the estate and accounts will transfer to the person (or people) appointed by the court in the probate process or the trustee if the maker created a trust.
MYTH 2: “Simply having a revocable trust means that my estate will avoid probate.”
Those who wish to avoid the administration of a will in probate court often use a revocable living trust as the dispositive tool for the estate plan. However, a revocable trust must be funded properly to avoid probate. Thus, the assets of the estate must be titled in the name of the trust or payable to the trust by beneficiary designation.
MYTH 3: “Giving my adult child access to my bank account doesn’t mean they can use the money for whatever they want.”
It is common for an individual to give their adult child access to their bank account in case of an emergency. For example, some elderly individuals name their adult children as joint owners on a bank account and direct that the money is only used to pay for medical or funeral expenses. While most responsible children will honor their parents’ wishes, there is still a risk that the money will not end up being used for its authorized purpose. In fact, when you name someone as a joint owner on your bank account, they have the legal right to use the money in any way they please.
MYTH 4: “I don’t need to worry about incapacity until I’m much older.”
In an ideal world, this statement would be true. However, we never know when an accident, injury, or illness could strike. Creating legal documents that plan for incapacity, such as a health care directive, is an important safety measure. Having incapacity documents in place means that your loved ones will have the power and tools they need to help care for you if the time ever comes.
MYTH 5: “I did my estate plan a few years ago, so I don’t need to think about it anymore.”
It is often said that estate planning is a process – not a one-time event. Changes in family circumstances (marital, health, economic, etc.) and in the law often require revision to your planning documents. Planning documents that are more than five or ten years old often require revisions. Most often, revising the estate plan simply involves minor changes to these documents. Furthermore, it is important to confirm that the planning that has been done is complete. On occasion, final drafts of documents remain unsigned or the signed documents lack coordination with the assets of the estate. This can be resolved, however, with proper asset titling and beneficiary designations.
To recap, Parts I and II of this series debunked ten estate planning myths and provided tips for how to avoid falling into their traps. Remember, just because you’ve heard something time and time again does not make it true. The more time you spend listening to estate planning myths instead of taking action means more risk for yourself, your family, and your future. Reach out to an experienced estate planning professional now to learn which estate planning tools are right for your stage in life.