A well-crafted estate plan is essential to secure your financial legacy and protect the future of those you love. Yet, 60% of Americans don’t have a will or living trust. Most people wait until they are in their 70s before engaging in the estate planning process.
Understandably, confronting your mortality is not something many embrace with enthusiasm. While that’s the primary reason for procrastination, misconceptions about estate planning contribute to the problem.
Here are five of the most common ones.
1. Estate Planning Is Only for the Wealthy
One of the most prevalent misconceptions is that estate planning is only necessary for the affluent.
If you own any assets—like a house, a car, retirement savings, or even cherished personal belongings—you have an estate. An estate plan provides a roadmap for distributing these assets according to your wishes after your death.
Estate planning isn’t just about your assets—it also takes into account what would happen if you are incapacitated. This might include healthcare directives or naming a guardian for your minor children. Without an estate plan, these critical decisions could fall to the court system or individuals you may not have chosen.
Remember, the goal of estate planning isn’t just to distribute wealth—it’s to provide clarity and reduce the burden on your loved ones during a very stressful time.
2. A Will is All You Need
While a will is a crucial component of estate planning, it’s often insufficient. A comprehensive estate plan should include a power of attorney, a healthcare proxy, a living will, and possibly trusts.
A will only takes effect after you die and doesn’t protect you if you become incapacitated. That’s where a living will, healthcare proxy, or power of attorney comes into play. These documents allow you to designate a trusted person to make financial and healthcare decisions on your behalf if you can’t do so yourself.
Even if you have a will, your assets may still have to go through probate—a public, often expensive, and time-consuming legal process that validates your will and administers your estate. However, assets placed in a trust bypass the probate process, providing a more efficient, private, cost-effective, and seamless transition.
3. Estate Planning is Only About Asset Distribution
While deciding who gets what is a big part of estate planning, it’s not the only concern. Estate planning also covers aspects like the protection of beneficiaries, minimization of potential estate taxes, and continuation of a business, if applicable.
With a living will or healthcare proxy, you can outline your medical treatment preferences if you can’t communicate.
Trusts can protect minor children or family members with special needs by managing assets on their behalf.
4. Set it and forget it
Estate planning is not a static, one-time event but a dynamic process that should evolve as your life changes. Significant life events—like marriage, divorce, the birth or death of a child, retirement, or substantial financial changes—should trigger a review of your estate plan.
An outdated estate plan can lead to unintended consequences. An ex-spouse might inherit your assets, or a court might appoint a guardian for your children you wouldn’t have chosen.
Regular reviews ensure your estate plan aligns with your current situation, objectives, and legal requirements.
5. Estate Planning is a DIY Task
The rise of online legal services has made it tempting to tackle estate planning yourself to save legal fees. However, estate planning involves much more than filling out boilerplate forms—it requires a thorough understanding of complex legal and tax principles.
Although DIY estate planning may seem cost-effective, mistakes or omissions can be incredibly costly. For example, a failure to fund a trust adequately, not considering tax implications, or forgetting to update beneficiary designations after major life events can leave your loved ones in a legal quagmire.
Professional assistance from an experienced estate planning attorney can ensure your estate plan is tailored to your specific situation, compliant with current laws, and comprehensive in its coverage.
Now that you’ve decided to create an estate plan, who should you retain to implement it?
One key professional is an estate planning attorney who can help create a comprehensive plan.
You may want to work with a financial advisor to ensure your assets are appropriately managed and invested.
Finally, an accountant can help minimize taxes and ensure your estate is valued correctly.
Some financial advisors are also certified public accountants. These advisors are especially well-qualified to provide estate planning advice.