LEGAL READ FROM ROB: Five Estate Planning Myths

LEGAL READ FROM ROB: Five Estate Planning Myths

Today’s article covers common estate planning myths. You can likely debunk many of these myths without my help. Nevertheless, I hope each of you learns something new here!

A considerable number of myths exist about Estate Planning. While misconceptions may be less prevalent due to increased media coverage and more sophisticated consumers, I still encounter quite a few. Below, I’ve outlined some of the more common misconceptions, and I attempt to set the record straight as to each.

(1) Myth: If you are not wealthy or if you have a Will, you don’t need a Revocable Living Trust (“Trust”).

Reality: California Residents who die with or without a Will (and have no Trust), owning an aggregate of more than $150,000* of assets are generally subject to probate. Probate is a public, court supervised estate administration process that typically takes nine months to a year, or longer; requires a great deal of paperwork and hassle; and involves substantial attorneys’ fees, executor fees and costs.

*Certain kinds of assets, such as joint or P.O.D. accounts, joint tenancy assets, and insurance and retirement accounts with designated beneficiaries are not included (they’re also exempt from probate).

Fortunately, all assets titled in a Trust are exempt from Probate. So, regardless of one’s level of wealth and particularly for those who own a home and/or any other real estate, a Trust is an excellent “Will substitute” and probate avoidance vehicle. Note that even if you have a Trust, it is important to also have a “pour-over” Will – a safety net to ensure that any non-trust assets are distributed per your wishes.

(2) Myth: It is time-consuming and complicated to establish and manage a Trust.

Reality: A Trust: a) takes little more time to establish than a Will; b) does not need to be significantly more complicated than a comprehensive Will; c) is typically quite straightforward to fund (i.e. to retitle your assets in the Trust); and d) is managed nearly identically to the way one manages assets without a Trust, other than the need to observe some minor formalities.

(3) Myth: A Trust has income tax implications and triggers extra filing requirements.

Reality: When you establish a Trust for yourself (or you and your spouse) no additional income taxes or property taxes are triggered and there are no additional income tax filing requirements during your life.

(4) Myth: You should be afraid to do a Trust because doing so will lock you into the decisions you make.

Reality: A Revocable Living Trust is revocable (though there is seldom any reason to revoke it) and may be amended any time you wish. As your personal, familial and financial circumstances change, it is quite easy and affordable to work with your estate planning attorney to review and revise your document so that it continues to reflect your current wishes.

The above is in contrast to Irrevocable Trusts, which are used only in limited, specialized situations (e.g. when people gift to minors, young adults or anyone who receives government benefits for special needs; and when very affluent people gift to loved ones and/or charitable organizations for Federal Estate and Gift Tax mitigation purposes).

(5) Myth: If I sign a Power of Attorney, I don’t need a Will or Trust.

Reality: Every adult should have a Power of Attorney. It gives someone you trust the power to transact financial business for you in the event of your incapacity. If you become incapacitated and have no valid Power of Attorney, an expensive and cumbersome Conservatorship court proceeding will likely be necessary to vest someone with legal authority to manage your finances. As helpful as a Power of Attorney is, however, it’s only operative during your life; when you’re gone, it ceases to operate and your Trust and/or Will then become the governing document(s).

This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.

Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.

ESTATE LEGAL SERVICES: Need to find an estate planning attorney in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on Revocable Living Trust, Wills, Durable Power of Attorney, Advance Health Care Directive, Special Needs Trusts, and Irrevocable Trusts & Advanced Estate Planning, including Irrevocable Life Insurance Trust (ILIT), Qualified Personal Residence Trust (QPRT), Defective Grantor Trust (IDGT), Grantor Retained Annuity Trust (GRAT), “Crummey Trust”, and various types of Charitable Trusts.

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