6 Common Myths About Estate Planning
- A will can oversee the distribution of all my assets
- Once I have my assets in order, I’m set
- I can get around to drawing up a will better when I’m older
- If I make an estate plan, I won’t be able to change it
- It’s too complicated to set up
- Estate planning is most important for the superrich
1. A will can oversee the distribution of all my assets
Janice: Most people think, “I need a will, because I have to figure out what to do with my funds.” The myth is that, a will can oversee the distribution of all my assets, but you and I know that that’s a myth, because when you have some forms, like life insurance, et cetera, that has a beneficiary already named, the will does not distribute that. Maybe you could help with that a little bit.
Anthony: Sure. This is a very common misconception. This is a good one to point out. A lot of folks think their will overrides any beneficiary designations, or joint accounts, but no, that’s not the case. The will only controls things that are in your name only. I’ll give you an example, if you pass away with a bank account worth $100,000, and, I don’t know, yeah, a life insurance policy that’s worth another $100,000, you might think, “Okay, I have $200,000 to my name, so I’ll write a will that says, ‘Half to my son, and half to my daughter, they each get $100,000.'”
Anthony: But, if the life insurance policy has a beneficiary designation on it to your son let’s say, then at the end of the day, the will that says, “Half to each of my children,” will only control the $100,000 in the bank account. It’ll actually turn out that your son will, in effect, get $150,000, the $100,000 life insurance policy, and $50,000 from the bank account, and your daughter will only get $50,000. That’s a huge difference from what you intended. That’s why it’s really important to understand that the will only controls things that don’t have a beneficiary designation, a joint tenant, or something like that.
Janice: That makes a lot of sense. I know that we’ve talked about this before, and we’ll talk about it again in this article, but it’s important to have somebody draw up your estate plan that knows these factors, that can account for all of this, and help you make good decisions.
Anthony: Absolutely. The reason you work with a professional is not because they have forms, I mean, that’s just a small part of all this. It’s sort of seeing the whole landscape.
Janice: Correct. Like you said, you could probably have thwarted that problem, by knowing that the son would be getting the beneficiary designation from the life insurance. That is definitely true.
2. Once I have my assets in order, I’m set
Janice: While that might be true with the financial aspect of it, what the author is talking about here, is your health and state of mind. There’s more than just accounting for your finances, but what happens if you end up in a situation where you lose your health, your declining health, your state of mind, who’s going to make the decisions for you? They talk about in here, as a power of attorney’s, and living wills to help account for those other aspects that a will doesn’t cover.
Anthony: Oh, you know, based on the header, I thought this was going to go in a different direction about needing to constantly update … not constantly, but periodically update your estate plan, but so it looks like she’s going in a different direction talking about how your estate planning is not just about your money, it’s about your healthcare decisions, what happens if you’re incapacitated, and your, I guess, funeral arrangements and remains, things like that, is that right Janice?
Janice: Correct, correct. She’s talking about just the really aspects of it. This is not just a small package of a will, but maybe in estate planning as a whole, that there’s more parts to it. She does talk later about being able to change things.
3. I can get around to drawing up a will better when I’m older
Janice: Well, you may be in a situation right now to do it, depending on what your situation is, or maybe when you’re a little bit older, so I maybe agree, maybe not. So agree, it depends on your situation right this moment. Of course you don’t want to wait until your … it’s too late, but you want to make sure you’re in a position that, “You know what? Now’s a good time. I have a children, and I have the accounts, I need to make sure everything’s in order.” Don’t wait. What did you get from that one?
Anthony: Yeah, I mean, if you’re just out of college, maybe you don’t need a will, but I’d say the line in the sand is once you have kids. I mean, just to name guardians, and to make sure that those types of things are set up, in case anything were to happen to you, before your kids reach adulthood, that right there is a trigger where you need to get something in place.
4. If I make an estate plan, I won’t be able to change it
Janice: Well, we know that’s not correct. Things change. Things happen. Life happens. Divorce happens. Money happens, up and down, depending on what it is. You can change your estate plan. Why don’t you talk about that because I know that you suggest a certain timeline for that to revisit it, correct?
Anthony: Absolutely. My sort of rule of thumb is to at least take a look at your situation every four years, and just think presidential cycles, or Olympic cycles, whatever matches your particular circumstances. That doesn’t necessarily mean you need to update your will every four years, but just take a look. Do you have new kids? Do you significant changes to your assets? Are the people who you’ve nominated as your executor, or guardians for your kids, is it still appropriate? Maybe you thought your parents would be the best guardians for your kids, but maybe their health has changed over those past four years, or somebody’s moved. Just think about everything at that four-year interval.
Janice: Absolutely. It takes just a few minutes, just read it over, say to yourself, “Does this still work?” If you need to talk to somebody and ask a few questions, maybe the person who helped you draw it up probably will help you with that.
5. It’s too complicated to set up
Janice: Yes, the estate in itself it really does seem like it is complicated, however, if you have someone who’s helping you, that’s a professional that does this as their living, and their career, and they’ve done this, you’re going to be okay, they’re going to help you through it. You meet or talk a few times, and you’re going to have a really great plan. We always say go with a professional, it’s not going to be complicated. They’ll help.
Anthony: I mean this is accurate. Estate planning is complicated, and I think it’s useful for folks to think of it, not in terms of a zero sum, I have a rock-solid estate planner, or I don’t, but rather think about it as playing the odds. You want to increase the odds that your family will have a smooth transition. That doesn’t guarantee, I mean, because from the time you draw up your plan, to the moment you pass away, that’s kind of unknowable in most cases. Your assets will change. Your wishes and your circumstances might tweak a little bit, but you’ll probably be a lot closer to making it smooth for your family, and an accurate reflection of your wishes, than if you did nothing at all, right?
Janice: Absolutely. You just, you get with a professional, they’re going to help you.
6. Estate planning is most important for the superrich
Janice: Well, it is really important for the super rich, it’s important for everyone however. She takes a quote that says, “People often don’t know enough about what they have, and their true financial value.” You may think, “I don’t have anything. I don’t need a will.” That might not necessarily be the case, like you said, with children. You may not look at your finances and think you have a big pot of money, but you have children to care for, and that’s important. I don’t think … and she’s right, estate planning is not most important for the super rich, it’s important for everyone.
Anthony: Just in terms of the math, let’s talk … I’ll give you an example, let’s say due to a lack of planning, you’ve caused maybe $25,000 in legal fees and court fees, and headaches after your death, for whatever reason, let’s say it’s because you neglected to take care of a certain family member, let’s just leave it at that. If you are Warren Buffet, or Bill Gates, $25,000 means nothing to your estate as a percentage, right?
Anthony: But if you are one of us, I guess, I don’t know how else to put it, or let’s-
Anthony: … say your status, I don’t know, $100,000 or even a million dollars, $25,000 is a lot of money.
Anthony: I think it’s more important to avoid that cost at the more middle, or even upper-class levels than it is for the super rich.
Janice: That’s a great point. I didn’t think of it that way. But definitely important for everyone to have an estate plan like we had talked about before when it’s the right time, and with a professional.