4 common estate planning myths debunked
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Creating an estate plan will help your family get the assets you want them to get when you die, so you don’t want to fall for any myths that surround the process.
Remember: You’re not creating an estate plan for yourself, you’re doing it to communicate your wishes after death, said Paul Berman, a Florida estate planner at Berman and Berman P.A.
“You don’t want your family members fighting with one another over ,” he said. “Put the effort into it, be efficient, put the time in and get it right the first time. You don’t want to have to change it later on.”
Here are four common estate planning myths debunked.
A will is a legal document spelling out your assets and who you want to receive them when you die. Contrary to popular belief, a will won’t necessarily get you out of probate court, which verifies if a will is legal and carried out. The terms in your will direct probate courts, making it easier for your family to receive assets, said Berman.
Not every asset goes through probate. Several assets avoid the probate process, including bank accounts, retirement funds and life insurance. You can also avoid probate with a trust, which is dealt with outside the courts.
Trusts do not get recorded by the courts, meaning the assets included are kept private, said Berman. The trustmaker, also called the guarantor, decides which assets are included in a trust, including property. A trust can also be used when you’re alive, for example passing down assets to a family member once they’re of a certain age. Trusts can be revised while the guarantor is alive, but once an asset is given away it can not be recovered.
If you die without a will, the probate court will determine who inherits your assets — a process called intestacy. The courts will follow state laws, which can cause a major headache for anyone involved. Even if you don’t have immediate family like a spouse or children, “most people don’t want their assets divided up by the courts,” said Berman.
Take film producer Howard Hughes for example. He died without a will because he didn’t have a family or direct descendants to pass his $2 billion empire to. As a result, people came out of the woodwork to claim part of his estate, including a gas station owner who received $156 million despite having no credible connection to Hughes.
A will not only designates where your assets are distributed, it also names the executor who is responsible for distributing them. Assigning an executor is one of the first steps in the probate process, and they have to be approved by the court. Executors make sure assets in a will are given to the right people, but they are not legally responsible for distributing your trust, retirement savings or life insurance policies because those assets are not named in a will.
Unlike a will, a trust does not go through the courts and is distributed to beneficiaries according to its terms. Retirement plans and life insurance policies follow similar protocols. For each one, the financial institution will need a death certificate to prove the account holder died before it distributes benefits. Because trusts, retirement savings and life insurance policies don't have an executor handling their distribution, it's important to update primary beneficiaries periodically.
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