I hear a lot of different information about the consequences of making a mistake in an estate plan. How can I separate fact from fiction?
Estate planning is, of course, an important consideration for every family, regardless of size or financial situation. However, there are a number of myths out there, many of which are designed to coax folks into purchasing costly plans or unnecessary trusts on the promise of tax avoidance and the like. The following explores five common myths circulating the estate planning industry, followed by helpful suggestions to avoid being duped or misguided.
Myth #5: Everyone needs a revocable trust: A revocable trust is an estate planning tool that requires testators (known as “grantors” or “settlors”) to retitle their property into the name of the trust, which will then be distributed according to the terms of the trust agreement. This tool is handy for probate avoidance, but will not necessarily save on estate taxes or other assessments if not properly drafted. Likewise, a revocable trust may not be necessary for everyone, as it can be costly to set up and maintain.
Myth #4: A trust avoids estate tax: Only a very small fraction of estates in the U.S. are subject to the estate tax. To avoid paying estate tax, an elaborate and complex network of trusts, gifting, asset transfers, and charitable bequests is necessary – and begins long before the testators reach their final years. In sum, a simple trust will generally not avoid estate tax, and most individuals need not worry about this issue in the first place.
Myth #3: Probate is to be avoided at all costs: Many will have you believe that enduring the probate process will be an intolerable experience fraught with delay, expense and unnecessary court procedures. While true that probate proceedings can be inconvenient, executing an elaborate and expensive estate plan to avoid the process may be unnecessary for some, particularly those with a small estate.
Myth #2: Transferring assets to my children will qualify me for Medicaid: This myth may be partially true, provided the transfers occurred long ago and fall outside the five-year look-back period. By contrast, transferring property to children immediately prior to applying for Medicaid will trigger a lengthy penalty period, and you may be better off selling the assets for value in order to pay for medical expenses prior to reaching eligibility.
Myth #1: I can download my will from the Internet: At first blush, downloading a will template from the Internet may seem like a cost-effective exercise, particularly if your estate is relatively straightforward. However, this can also invite disaster, particularly if the will form is not drafted with California formalities in mind.
Contact a reputable Orange County estate planning attorney today
OC Wills & Trust Attorneys have more than 20 years of experience guiding clients in their estate planning journey. Contact our Orange County, California office today by calling (949)347-5256.