If you have found yourself on this page, you have read the article, How Well Can You Answer Some Common Estate Planning Questions? If you are thinking about doing estate planning yourself using one of the available online estate planning kits, you should have some confidence in your understanding of estate planning to do it yourself. This little quiz is a good test.
I see many examples on a weekly basis of people who make estate planning decisions based on partial or faulty understanding of the legal principles that apply. Some of those mistakes are extremely costly and burdensome to families who must deal with the fallout of those mistakes. My mission is to try to educate people to make good estate planning decisions and leave an estate that is a blessing to their loved ones, rather than a curse.
As for the quiz, if you answered yes to any of the questions, the answer is wrong (or incomplete at best). Following are some answers to those questions to explain why.
If I don’t do a Will, my assets will go to the state:
Your assets will never go to the state unless you owe the state money, or you literally have no heirs. Almost everyone has heirs, but they may not be the people you want your estate to go to. Doing a Will puts you in control of your estate so that your estate is handled by the person you want to handle it and goes to the people you want to receive it.
A Will directs where all my assets will go when I die:
For most people, the answer to that question is, no – at least not completely. Most people have assets that are in joint tenancy, assets which have beneficiary designations or assets that are payable on death (POD) to designees. These assets would include life insurance, IRA’s, 401K’s, bank accounts with POD designations, etc. None of those assets are subject to a Will.
Your Will only affects assets that do not have a built-in mechanism to pass on death. Thus, anyone who does a Will needs to understand what assets will be subject to the Will and what assets are not subject to the Will. You want to make sure that the assets going directly to people through beneficiary or payable on death designations work in harmony with the directions in the Will to accomplish your goals.
Estate planning is primarily about doing a Will:
Because many assets have built in mechanisms to pass on death (to beneficiaries or payable on death designees), doing a Will is only one component of estate planning. Those beneficiary and payable on death designations are another component of the estate planning. For many estates, most assets may be subject to beneficiary or payable on death designations. If minor beneficiaries are involved, you may want to use a Trust to provide supervision and protection of those assets that would otherwise go directly to minor beneficiaries. Thus, a Will might not be the primary component of your estate planning at all, depending on your needs.
Doing a Will means my estate will not have to go through probate:
That statement is resoundingly false. A Will does not avoid probate; rather, it puts you in control of the probate process by identifying the person who will handle it (the executor) and how your estate will be distributed. There are ways of avoiding probate, but doing a Will is not one of them.
Doing a Trust ensures my family won’t have to pay taxes when I die:
That statement, generally, is false. There is nothing about a Trust as a general proposition that will avoid taxes. Trusts can be used as a tool to avoid or minimize taxes, but Trusts do not automatically avoid taxes. Trusts will not avoid income taxes. If a Trust is made as a beneficiary of qualified plan assets that isn’t a qualified Trust, it will actually trigger income taxes. Trusts can be used to minimize or avoid estate taxes, but employing a Trust for that purpose requires complex planning that many attorneys who don’t focus on estate planning will not even touch.
Putting my assets into a Trust means my creditors can’t touch them:
This statement is also false. In Illinois, as in most states, a person cannot transfer assets into a Trust and protect their own assets from their own creditors. Most states don’t allow people to avoid creditors simply by transferring title to a Trust. You can put assets into Trust for another person and protect your assets from the creditors of the other person, but you cannot do it for yourself.
Adding a child to my bank account is a good way to allow her to pay bills if something happens to me:
The answer to this is also false. Adding anyone to your bank account makes that person an owner of your account. That person would have an immediate right to withdraw all your assets from your account. Even if they would not do that, your account will become subject to that person’s creditors (because they are now an owner of your account).
It is much better to do a Power of Attorney and name that person as your agent. A Power of Attorney will give your agent full access to your account to be able to pay bills for you if you become incapacitated without opening up your account to consequences you do not intend.
Making a bank account payable on death to one person who knows how I want the money handled is a cheap alternative to expensive estate planning:
Again, the answer is false. If you name one child as the payable on death designee of a bank account (or beneficiary of life insurance, or IRA, etc.), that person will become the sole owner of those assets when you die. They will have no legal obligation to share those assets with anyone. You will have no control over how they use those assets, and the rest of your family will have no recourse against them.
Even if you believe they will “do the right thing”, you will create burdens that you might not intend. Any transfer of assets to another person would be considered a gift for which a gift tax return needs to be filed with the IRS (if the gift exceeds the $15,000 exclusion amount).
Sometimes, things work out, and no one is the wiser, but doing your estate planning this way is fraught with all kinds of potential problems that can blow up and cause hard feelings and practical difficulties. I have seen families torn apart by this kind of “estate planning”.
The statements above are exemplary of common misunderstandings that I see on a regular basis. These statements address only the most basic of estate planning principles.
Estate planning is a highly complex area of law. As a law student and young attorney, I was bothered by the fact that it was so complex. As I got into practice and continued in practice for a while, I began to see why it can be so complex. There are many ways in which estates can “go wrong” and cause difficult and expensive problems for families that can destroy them psychologically and emotionally.
No one wants to leave a legacy of family problems. No family is perfect, but careful and thoughtful estate planning can go a long way to preserving the good relations in your family and ease the burden of your passing. Shoddy estate planning that exasperates family relationships by creating burdens and tension is not the legacy most people want to leave behind.
If you would like to avoid problems for your family, we can help you. Call or email us for a worksheet and an appointment. I will meet with anyone for the first time at half my regular hourly rate with no obligations. I will help you to focus on the things that are important to you and the goals you want to accomplish. I will walk through your estate and help you develop a plan to address those concerns and meet those goals that are tailored for you. I will tell you before we finish what the cost would be to implement an estate plan that is right for you.
You will have no obligation to do your estate planning with me, but you will walk away armed with some working knowledge about how all of the pieces to the estate planning puzzle fit together for you. I will work through your estate with you and provide you options for addressing your concerns and meeting your goals. You can start today by responding below and asking for a worksheet.