Estate planning for the USA is an area that is riddled with confusion, which is the precursor to some very expensive mistakes. Not to mention the amount of stress it can cause your family. Here are some top estate planning myths clarified so you can get on with your future financial planning:
I need an attorney to make the documents
If your family structure and finances are simple and sorted, you can draft most of the documents yourself, for very little money. Health care decisions can be taken on the basis of tests conducted at a local hospital or you could download a specialized state-wise form at the National Hospice and Palliative Care Organization website for free.
Legal documents like a power of attorney and a simple will format are available free online or for a relatively low cost.
Trusts don’t have estate tax
The reality is that a trust cannot help you evade estates tax. But, if you have taxable estate, you can seek professional legal counsel as some trust funds are simply set up as a method to reduce or remove estate tax liability.
If I don’t have a will when I die, my assets will be taken by the state
Ideally, every state has its laws of intestacy (laws that govern dying without a will). These will come into play should you pass away without leaving behind a will. Check mystatewill.com to see what fate is decided by your state for those who die intestate. If you don’t like what you see, consider drafting a will.
A will can also serve as a directive for appointing the guardian of minor children, which is a decision that you are sure to want to make instead of having the court appoint someone.
If I have a will, I shouldn’t concern myself with probate
While a will can definitely make your wishes known, it can’t really avoid the process altogether. A will can be easily challenged in court, in which one or multiple courts will decide the outcome of your assets. Also, if you own real estate in multiple states in America, each of the properties may undergo probate separately.
I’ll have to pay gift tax for anything over $13k given to someone per year
With the exception of money paid directly to a medical or educational institution, charity, or to a 529 plan, anything you give someone (who is not your spouse) in a year’s time will reduce your lifetime gift and estate tax exclusion amount. It is only after you have used up this exclusion amount, do you pay gift tax.