There is no one right way to accomplish your estate planning objectives—no one right answer. But there are wrong ways. Several misconceptions about estate planning continually plague people trying to protect their families and assets. Fortunately, you can use the answers to seven common estate planning questions to avoid these problems, which can cost you and your family its financial security.
Q-1: Setting up an estate plan sounds expensive and time consuming. I don’t really need a Will or Revocable Living Trust, do I?
A-1: Yes, you do! If you die without a Will or Living Trust, the state will distribute assets in your name according to inflexible state laws that may not be in your family’s best interest. In essence, the state will determine who inherits your property and in what proportion they receive it. This state-enforced distribution may result in your children receiving property as early as age 18 in some states and in your spouse receiving as little as only a third of your assets. With an estate plan, you can defer distributions to your children until a later date or dates.
Additionally, if you die intestate (without a Will), the state distributes your assets, and your estate may not be able to fully use the estate tax marital deduction. This may unnecessarily trigger estate tax on your death. Furthermore, your estate may not be able to take maximum advantage of your estate tax exclusion, resulting in a higher estate tax on the death of your spouse. Finally, your estate may also be subject to higher administrative costs resulting from the need to pay for surety bonds and greater court supervision.
Q-2: I’ve had an estate plan in place for years, so I don’t have to worry about estate planning anymore, right?
A-2: Wrong! Often the only thing worse than not having an estate plan is having one and not updating it. The beneficiaries you designated with your old plan may no longer be appropriate, and your asset allocations may significantly distort your current intentions. In addition, the people you chose as Guardians for your minor children may no longer be suitable to act in such a capacity. Similarly, the trusted brother-in-law you designated as an Executor or Trustee under your old plan may no longer be your brother-in-law, or you may no longer desire him to serve for some other reason.
You may also find that you’ve unintentionally disinherited your spouse or significantly reduced the amount of your estate that he or she should receive because of the increases in the estate tax exclusion beginning in 1997 and accelerating this year and in future years. For example, from 1987 to 1997, the estate tax exclusion was $600,000, and many estate planners allocated that amount to their children and the balance of the estate to their surviving spouses. But under the new tax law, the estate tax exclusion is $1.5 million this year and increases until it reaches $3.5 million in 2009. If your old plan allocates all of this exclusion amount to your children, will it result in leaving your children too much and your spouse too little?