Estate planning can be a daunting, though important, topic. And, it is a topic that matters to almost everyone. Yet, so many people still misunderstand it, despite the fact that the internet is awash with content on point. To get you on the right track, here are five things people consistently get wrong, and how you can get them right.
- I Need to Write My Will
- Avoid Probate
- I Don’t Have An “Estate”
- My Kids Will Sort It Out
- The State Will Take My Property If I Don’t Have a Will
I Need to Write My Will
The internet and social media are filled with people declaring that they need to write their wills. But, the premise really is the problem in this case. The knowledge a person would need to competently “write” a will is so much, no one in their right mind would attempt it.
Do you have a working understanding of your state’s probate, intestacy, guardianship, conservatorship, real estate, partnership, LLC, corporation, bank account, probate and trust litigation, and tax laws? Do you understand federal tax law on retirement accounts, individual tax, partnerships and corporations, estates, and trusts? If you answered “no,” you are not the will writer you are looking for. To do otherwise is akin to giving yourself a root canal.
Instead, hire a professional. If you lack means to hire someone, find your local legal aid or community legal clinic (https://www.usa.gov/legal-aid). But, get help.
Avoid Probate
Although avoiding a “probate” can be helpful, it is not, in fact, the point of estate planning. It may be a result of estate planning.
First, understand what probate is. Probate is a court process taking place after a person dies by which a judge, or court-authorized administrator, accepts a will as valid and final (or determines there is no will), and appoints a personal representative (or executor).
Second, though not having to go through the court process of probate can be helpful, and in some states it does save costs, its avoidance alone is not really the “point” of estate planning.
In fact, it is often far more important to avoid a guardianship or conservatorship while you are still alive, than a probate after you die. Guardianship and conservatorship proceedings are court processes by which a judge determines you can no longer handle your financial or health care affairs and appoints someone to do it for you. Planning that avoids a guardianship or conservatorship must come before the crisis it is averting. As the Brittney Spears case makes obvious, they can be embarrassing and cumbersome–not to mention expensive.
But all of the focus on probate and death distracts from what is likely more meaningful–what happens while you are alive. Good estate planning addresses who handles your health care and financial matters while you are living in a way that avoids court intervention. You will be alive for that part; so, by definition, you will care much more about it than what happens after you pass away.
I Don’t Have An “Estate”
In the eyes of the law, almost everyone has an estate. That’s because an estate is just property, of any variety and any amount. Doing estate planning for a small amount of property is, of course, a different proposition to estate planning for billions. Because only about 0.7% of the global population are millionaires (see https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html), if you don’t have millions you’re in good company.
This data does not mean you have nothing to plan. Even small accounts can be frozen when a person becomes incapacitated or dies, without thoughtful planning. And, though small, those accounts could be the financial lifeblood you need for your care.
So, rather than focusing on the size of your net worth, think more strategically about who will step into your shoes when (not if) you cannot manage things on your own.
My Kids Will Sort It Out
In short, no they won’t. At least, not without anxiety, potential conflict, and completely avoidable confusion.
Each state has a statute that decides how property will pass when a person dies without a will (called “intestacy statutes”) and whom a court can consider to appoint as guardian or executor when a person becomes incapacitated or dies. Unless you trust your state legislators implicitly, then you likely don’t want to rely on those statutes.
If you find yourself in this popular untrusting group, then you need to do your own estate planning. Without it, you might think your kids will sort things out, but in fact their hands may be tied by the laws of your state. You can override many of those laws by simply stating what you want in a properly prepared estate plan.
The State Will Take My Property If I Don’t Have a Will
Many of the state statutes I mentions above, that say what happens to property if you do not have an estate plan, do provide for your property to go to the state at your death in some instances. The legal term for property going to the state is “escheat.” But, this is typically only if you are not survived by any “heirs,” which usually extends to cousins and more remove relatives.
Additionally, you can have estate planning without a will or a trust. Joint accounts, for example, pass to the remaining account owners. Many retirement accounts pass to the named beneficiaries on a beneficiary designation. Those types of transfers happen without any will or trust, though, to be clear, they alone are not likely sufficient planning.
Though escheating is possible in most places, it is not probable. If the low probability of escheating is great enough to motivate you to do estate planning, though, I won’t stand in your way.