Craig Tashjian Learning Center - Beyond the Mortgage - 10 Common Misconceptions About Estate Planning

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Considerations Beyond the Mortgage

Ten Common Misconceptions About Estate Planning

Presented by Andrew Butler, Esq.
Butler & Kriegel LLP
781-237-2570
www.bklawllp.com
butler@bklawllp.com

Estate planning is all about saving taxes so it is only for the wealthy -Anyone who is concerned with the proper disposition of their assets following their death or with ensuring the right guardian is appointed for their children should have an estate plan. Such a plan need not be complicated but there are many non-tax reasons for having an estate plan. Having a will is the only way to ensure that your probate property (property that you own in your name alone and for which there is no beneficiary designation) will pass to the persons you choose. A will also ensures that you can choose the guardian for your children and the executor who will administer your estate. Also, because the value of your home, the face value of any life insurance policies and the balance in your retirement account is included in your estate, many people unexpectedly find themselves subject to estate tax.
Whatever I do, I have to avoid probate since it is so expensive and takes years to complete – While probating an estate does take time and cost money, it is but one aspect of the administration of an estate. As a result, avoiding it does not necessarily speed up the administration process or make it much more economical. Moreover, it may require significant time and expense during one’s lifetime to avoid probate at death. There are also benefits in many cases to probating an estate which can more than outweigh the costs of doing so.
The only estate tax I have to worry about it is the federal estate tax since the state just follows the IRS – While this essentially was the case during the late 1990’s and early 2000’s, Massachusetts now imposes its own estate tax which is not directly correlated to the federal estate tax. As a result, without proper planning many estates may now be subject to Massachusetts estate tax even though no federal estate tax is payable.
I don’t need to designate a beneficiary of my life insurance policy, my IRA or my pension plan because I leave them all to my children in my will - Assets such as life insurance and retirement benefits are controlled, not by your will, but by beneficiary designation. Similarly, property you hold as joint tenants with right of survivorship passes on your death to the surviving joint tenant without Probate Court involvement. In addition, assets held in trust will pass according to the trust’s terms. It is very important, therefore, that you carefully review how ownership of your so-called “non-probate” assets will pass in order to avoid having such property distributed to unintended beneficiaries at your death.
If I die without a will all of my property will go to the state – If you die “intestate” (without a will), your probate property will pass to your closest living relatives under the statutory rules of descent (with a surviving spouse getting one-third to one-half of the probate assets). The state only receives the property if you have no family at all. Non-probate property (e.g. joint assets, life insurance proceeds and retirement plan assets) will pass to either the surviving joint owner or the named beneficiary as the case may be.
My spouse and I don’t need to worry about a will until one of us dies since everything is joint and will go the survivor anyway – While holding assets in joint names is simple and convenient, in order to minimize estate taxes it is often necessary for each spouse to hold assets in his or her own name. Many other estate planning options may be lost also if planning is not done while both spouses are alive.
A revocable trust will eliminate estate tax altogether – A properly drafted revocable trust is effective at minimizing taxes and deferring them until the surviving spouse’s death but cannot eliminate taxes altogether if the value of the assets is too high.
Unmarried couples (including same sex couples) cannot reduce estate taxes because the estate tax marital deduction does not apply to them. – While the estate and gift tax marital deductions are not available to such couples there are other techniques available for significantly increasing the amount which will ultimately pass to the beneficiaries of such couples’ estates.
I don’t need to worry about estate taxes because they are being repealed – The federal estate tax is not fully eliminated until 2010 and will return in 2011 unless Congress votes to make repeal permanent. Such a vote is not likely in the current fiscal environment. Also, even if repeal is made permanent Congress can always bring the estate tax back. The key to planning during these uncertain times is to provide for as much flexibility as possible since no one knows how this will all work out.
I would like to make a significant charitable gift at my death but I can’t if I want to provide for my family. There are a number of estate planning strategies, including charitable remainder trust and charitable gift annuities, which allow for family members to benefit from property which ultimately passes to charity. These strategies also provide significant income, gift and estate tax savings.