Estate planning is one of the most important parts of your financial plan.
Yet only 34% of people under 45 have a will and only 11% have a trust...
A huge reason for this is because people do not really understand what it is and why it is needed.
Let me walk you through 11 common estate planning misconceptions I see:
This is probably the most common myth. People hear the word estate and assume it’s about mansions, yachts, and trust funds.
In reality, estate planning is about protecting your family, not just your money.
If you have kids, own a home, or have any assets at all, you have an estate - and you need a plan.
And estate planning is also about the life stuff:
So many think this is true, but it is not.
Assets like retirement accounts, life insurance policies, and joint accounts pass outside your will, based on beneficiary designations.
If those designations are outdated or missing, your estate plan won’t work the way you intended.
(And this is a surprisingly common mistake)
We've seen way too many ex-spouses get money simply because beneficiary designations were not updated.
This is not true at all.
Here's what people are mixing up…
You can give $19,000 to anyone you want and to as many people as you want.
A husband and wife could give $19,000 each and each year to each kid for a total of $38,000.
Once you do more than that then you have to log it on a gift tax return.
Then there is no tax federally until you use up all your lifetime exemption which is currently $13,990,000 mil (x2 if married).
If you're over 18, you're old enough to need some form of estate plan.
Even young adults should have a healthcare directive and power of attorney. Who knows what can happen when you are away.
I know a lot of people who went to the hospital in college, making these documents very important.
And once you start accumulating assets or having dependents, it becomes even more important to put a plan in place.
A will is a good start, but it’s not a complete estate plan.
A comprehensive plan might include:
A will alone won’t protect your family from delays, expenses, or court involvement. Most wealthy folks end up wanting to avoid probate.
And if you have real estate in multiple states, your estate would go through probate in all those states. Not fun.
Wrong again. Trusts are one of the most effective tools for:
You don’t need $10 million to benefit from a trust.
In fact, many families with $500K+ in assets can benefit from a revocable trust.
Not unless you make it crystal clear, and legally binding (AKA creating an estate plan)
Even in close-knit families, emotions run high during a crisis. Without a plan, loved ones can end up fighting in court, guessing what you would have wanted, or making costly mistakes.
A good estate plan removes the guesswork.
This is similar to the one above. However, 529s are unique and you are able to contribute 5 years of contributions in 1 year.
This means you could do $190,000 in 1 year to a 529.
We have plenty of high net worth clients who do this to maximize the time for tax free growth.
When you do this, you do not use any exemption, but you need to log it on your gift tax return.
Well… this could or could not be true.
Revocable trusts are about probate and privacy, not about estate tax planning.
That is where irrevocable trusts come into play.
With irrevocable trusts you are usually using them to minimize estate taxes but most times you are giving up the step up in cost basis on those assets.
Not everything counts towards the $38,000 yearly gifting amount (if married).
You can spend as much on health care and education per year you want, then still give on top of that.
Most people do not know this.
Getting your trust documents done is part one.
Part two is about funding the trust.
This means:
Then you also need to update beneficiary designations to know what will go to the trust.
So many stop at part one and then the trust is almost worthless.
Get it funded!
Financial Advisor