Who Needs an Estate Plan?
For many people, their attitude about estate planning matches their attitude about fixing a squeaky hinge or submitting the warranty registration form that came with the refrigerator: They know they should probably get around to doing it at some point.
People often have such a casual attitude toward estate planning because they believe some of the following myths about estate planning, which lead them to believe that estate planning isn’t necessary:
Myth No. 1: Only rich people have an “estate.”
An estate is everything you own when you die – your home, personal property, vehicle, investments, bank accounts, retirement plans, life insurance, interest in a family business, ownership of oil and gas rights, and even pets. Passing away without the proper documents in place may allow a relative you don’t know well or you don’t want to handle your property to inherit your belongings. Without a will or trust, Pennsylvania law dictates who will receive your belongings.
Myth No. 2: Estate planning is mainly to avoid taxation upon death.
Some people think that estate planning is simply a complicated process to avoid paying death taxes. While tax savings are often helpful, an estate plan also helps people to preserve their assets while they are living.
For example, an attorney can help explain the Medicaid or Medicare process and help elderly and terminally ill clients maintain their available assets that otherwise may be drained by the cost of a nursing facility.
Myth No. 3: Young people don’t need an estate plan.
Most young people don’t think they need an estate plan because they don’t have many assets. But estate planning also includes creating important documents that designate who can make medical and financial decisions in an emergency.
Unmarried young people often assume that their parents can make those decisions. But in most states, parents don’t have the right to make medical and financial decisions for their children who are over the age of 18, even if the young adult still lives at home and is on a parent’s medical insurance plan. If the young person is in an accident, the parents will need court approval to make decisions for their child.
Myth No. 4: It’s obvious who should take care of your children.
As soon as you become a parent, you should name a guardian to take care of your child if something happens to you, even if you think it’s obvious who should take care of your child.
For example, a married couple might informally ask a sibling or close friends to care for their children if something happens to them. But without formal legal documentation, the court might decide that the children should go to the children’s grandparents.
Myth No. 5: All assets will automatically pass to your spouse.
Married couples often assume that if one of them dies, the living spouse will inherit all of their assets.
But if the couple has children, Pennsylvania law dictates that the surviving spouse will receive the first $30,000 plus one-third of the deceased spouse’s total assets, and the rest is distributed outright to the children.
Myth No. 6: Transferring a firearm in the will is the same as any other item.
Transferring a firearm in a will can be tricky. For example, a spouse may not want to own the gun or may not want to deal with disposing of it.
Furthermore, there are federal and state laws that restrict to whom you may leave a firearm. In many cases, the best way to transfer firearms is through a special kind of trust known as a living trust or “inter vivos” trust.
Myth No. 7: Separating from a spouse means separating them from the will.
Many people are separated for a period of time—sometimes many years—before they officially file for divorce. But if something happens to one spouse during that period, the other spouse is entitled to at least one-third of the assets, possibly more, unless the couple signed a prenuptial agreement.
Myth No. 8: Children inherit before a new spouse.
Many people who remarry after a divorce or death of a spouse still want to leave the bulk of their assets to children from the first marriage. But it’s very difficult to legally disinherit the new spouse. In Pennsylvania, the current spouse is entitled to at least one-third of a deceased spouse’s estate, no matter what the will says.
In many cases, it’s best to sign a prenuptial agreement that limits the new spouse’s inheritance rights. It’s easy to increase the new spouse’s inheritance later, but difficult to go back and limit it.
Myth No. 9: My family knows what I want better than an attorney.
While your family probably knows you much better than your attorney, it’s often difficult for grieving family members to think clearly and objectively about how their loved one wanted any property to be divided. Often, family members end up fighting amongst one another as they try to guess what their loved one wanted, all while dealing with their own emotions.
A good estate-planning attorney stays calm and objective while ensuring that the wishes of the deceased are followed exactly. The family can then spend time dealing with their grief without worrying about trying to distribute the estate.
The reality is that estate planning is for everyone, whether they have $10 or $10 million, are married or single, have children or not, and own a home or live with their parents. Waiting to plan an estate until you have more money or make other life changes is a gamble, one that your loved ones will probably lose. BW
Michele Conti is an estate-planning and elder-law attorney assisting clients with wills, trusts, estate administration, special needs, powers of attorney, tax planning, long-term care planning, and benefits. For more information, email Conti at firstname.lastname@example.org.