Top 10 Estate Planning Myths

  1. "A living trust avoids estate tax."
    A trust is an agreement between you and your trustee to carry out the instructions contained in the document.  A trust will not help you avoid taxes unless specific terms are added for that purpose.
  2. "Living trusts are the only way to avoid probate."
    There are several ways to avoid probate, and a living trust is only one of them.  If properly structured, a living trust will avoid probate.  However, most Michigan residents do not need a living trust to do so.  In any event, avoiding probate is not always the most cost-effective way to administer an estate. 
  3. "A trust protects my assets from creditors."
    Revocable or irrevocable trusts do nothing to protect assets from the creditors of the owner of the trust.  However, when properly structured a trust does provide asset protection for the beneficiaries of the trust.
  4. "If I don't have a will, the State of Michigan will get everything."
    Without a will, property will be distributed to a person's next of kin in accordance with a statutory priority list. The statutory list rarely matches a person's desire for distribution of their property.  However, the State of Michigan will not obtain your property unless you have no surviving family, or they cannot be located.
  5. "A will helps my heirs to avoid probate."
    A will must be admitted to probate for it to be carried out. The general purpose of probate is to transfer title to assets that a person owns at the time of death. Probate proceedings must be initiated to appoint a person to act on behalf of a deceased person in carrying out the terms of a will.
  6. "A will covers all of my property."
    A will only covers property titled in a deceased person's name at the time of death. Certain property such as jointly held assets, life insurance, and retirement plans will pass to the surviving owner or beneficiary.   A will is an important estate planning tool, but it must be drafted to coordinate with other methods of transferring assets.
  7. "I can complete my own estate plan."
    There are advantages and disadvantages to every tool used by estate planners. Kits and do-it-yourself software programs allow you to create a form document.   But you cannot create an estate plan unless you understand when and how your property will be distributed.  A professionally prepared estate plan will usually save more money than it costs.
  8. "I don't need to plan because my property is owned jointly."
    Sometimes owning property jointly with another person is a good idea. However, most people do not understand the legal implications of joint ownership. For example: (1) transfers to a joint tenant can be exposed to federal and state gift tax; (2) joint tenancy does not avoid probate, it just postpones it until the death of the survivor; (3) joint tenancy may not take advantage of the estate tax exemptions available to both tenants; (4) jointly owned property is subject to the judgment creditors of all joint tenants; (5) joint tenancy will result in the complete transfer of ownership to the surviving owner, even if that was not intended by a deceased owner; (6) joint ownership can affect qualification for public assistance programs such as Medicaid; (7) all owners must agree to sell jointly-owned real estate; (8) all owners have equal access to a jointly-owned asset, even if it is a bank, stock or other cash account.
  9. "Estate planning is only for wealthy people."
    Many factors other than wealth affect the need for estate planning, such as: (1) caring for a minor or disabled child; (2) transferring ownership of property; (3) caring for a surviving spouse; (4) transferring business interests; (5) transferring ownership of property in another state; (6) charitable giving; (7) avoiding probate; (8) avoiding taxes; and (9) care of pets. These are only a few of the reasons to plan your estate. Each person has their own objectives, but owning a large amount of property is usually not the primary reason to plan.
  10. "I am not old enough to plan."
  11. True, if you could predict the future.

 

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