Topics of Interest

Common Estate Planning Misconceptions

Misconception #1: Procrastination.
“I will never become incompetent, get sick, or die.”

According to a survey on estate planning conducted by Harris Interactive for Martindale-Hubbell and lawyers.com, more than half (nearly 55%) of all adult Americans do not have a Will.¹  The reasons for this, the survey finds, include:

• Not wanting to think about death or incapacity
• Not knowing who to approach about creating an Estate Plan
• People mistakenly thinking that they do not have sufficient assets to justify spending the money and time on Estate Planning.

In addition, uncertainty about who to chose as Fiduciaries (Executor, Guardian, Health Care Agent, Power of Attorney, Trustee, etc.) leads to a kind of “Paralysis.”  In terms of Estate Planning, “paralysis” is when individuals will not do the planning because they have no idea who to name as fiduciaries.  By not doing anything, becoming paralyzed, you leave these decisions in the hands of strangers.  These decisions will be made as a result of a special proceeding in the Surrogate’s Court, which can be costly, and may result in the appointment of someone you would never have intended or worse, the Public Administrator becoming the fiduciary.  However, there is always an available choice and an experienced Estate Planning professional can assist is resolving this issue.

Benjamin Franklin said, “In this world nothing is certain but death and taxes.”  Without at least a Will, distribution of assets will be directed by the State in which the decedent dies – often times not reflecting that person’s actual desires.  Planning for the inevitable can make a grievous and stressful time for loved ones less so.

Misconception #2: Preparing your own Estate Plan or Not consulting with a specialist. 
If you were having Cardio-Thoracic problems, would you consult a Cardiologist or a Pediatrician?

Estate Planning is a highly specialized field with its own set of intricate laws and statutes.  An experienced Estate Planning Attorney not only counsels with regard to the law but also provides counseling with regard to the “human factor.” The “human factor” includes decisions about who may be appropriate to act as the Estate fiduciaries and what ages and in what manner should distributions be made to beneficiaries.

Misconception #3: Incorrect or Inappropriate Beneficiary Designations.

Making the appropriate Beneficiary designation is important for many reasons.  Designations affect tax liability, the value of an asset after its owner dies, as well as the management of that asset.  For example, the asset Life Insurance(yes, this is an asset) is included in a decedent’s net worth for Estate Tax purposes.  However, there are particular designations of ownership and beneficiary which can exclude the death benefit from the taxable estate all together.  Depending on the objective and the taxable net worth, beneficiary designations can minimize or eliminate any Estate Tax, as well as protect unfit beneficiaries from unlimited access and control over an asset.

Another good example is Qualified Retirement Benefits such as 401ks and IRAs.  These assets have become more prevalent than ever as a substantial portion of wealth.  Strategic beneficiary designations maximizes value and can allow the asset to become multigenerational.

Misconception #4: Estate Planning is only for the wealthy and I will not be subject to an Estate Tax.

On January 1, 2009, the Federal Estate Tax Exemption rose to $3.5 million per person². The New York Estate Tax Exemption is $1 million and is an independent tax from the Federal Estate Tax.

Even if an estate will never be taxable (either federally or by the State), estate tax planning is not the only reason to go forward with an Estate Plan.  The “human factor” (described above) comes into play when thinking about custodial decisions for minor or special needs children, as well as considering protections against spendthrift tendencies, creditors, and marital considerations.

“The cost of Estate Planning isn’t worth it.”
The Estate Tax is commonly referred to as a “voluntary tax.”  There are so many available techniques in Estate Planning which can significantly minimize it or even avoid it all together.  Financial planning always includes an Estate Planning analysis.

Misconception #5: Probate is no big deal.

Probate is the process of submitting a Will for the Surrogate’s Court review.  The Surrogate’s Court requires a “Probate Petition” be filed along with a filing fee (determined by the value of an Estate), commencing this legal proceeding.  Ultimately the Court issues “Letters Testamentary” to the named Executor or Executrix in order for him/her to settle and distribute the Estate.

A probate proceeding is a public proceeding.  I don’t think anyone would agree that the “Queen of Mean,” Leona Helmsley wished for the public to know how much money she left her dog Trouble or that she would have wished to have the bitter Estate battle reported in the News.

Besides for the filing fee, legal fees will likely be accrued in order to settle an Estate.

Court intervention is expensive, time consuming, public, and intrusive.  A Revocable Living Trust is a document that is commonly referred to as a “Will Substitute” and avoids probate for any assets titled there-under at time of death.

Misconception #6: Once executing the Estate Planning documents, there is no more to do.

An up-to-date asset inventory should be well kept so that the Estate’s representative(s) do not have to search aimlessly through papers to locate records or to track down unknown beneficiaries/fiduciaries.

Fiduciaries (i.e Guardians, Health Care Agents, Attorneys-in-Fact, Trustees, etc.) should know who they are, how to act, and who they can go to for assistance.  The Estate Plan is specifically designed to function when you can not, whether in time of incapacity or in time of death.  Either way, you are unavailable to act and would obviously not be able to distribute the documents and information necessary for your fiduciaries to act.

Signed documents are not complete.  They require the “next step.”
Probate will be avoided by using a Revocable Living Trust to distribute assets only when those assets are already holding in the name of the Trust at time of death.

Beneficiary designations must be effectuated once particular documents are executed.

Gifting Strategies often will require appraisals and assignments once they are documented in order to enjoy the discounts that are available, thus minimizing the taxable estate.

¹ LexisNexis (New York, NY April 3, 2007). “Majority of American Adults Remain Without Wills, New Lawyers.com^SM Survey Finds.” Retrieved on 2008-07-03.

² The Economic Growth and Tax Relief Regulation Act of 2001.