Frequently Asked Myths Debunked

Myths and misunderstandings dominate the public consciousness when it comes to estate planning.  Your estate plan should be motivated by personal family considerations and sound legal analysis.  A brief description of these myths is set forth below. By reading them, and understanding them, you can make an informed decision in regards to your estate plan based on reality and not myth.

(1) MYTH: I can do my own estate plan.

FACT: There are advantages and disadvantages to most forms of estate planning. Many do-it-yourself software programs allow you to create your own documents. However, estate planning is more than just creating a form document. You cannot create an effective document without understanding how it will work at the time it is needed most. Trusts drafted and administered through internet forms are a leading cause of trust and probate litigation. Money spent securing good documents now will save your heirs a significant amount of money in the future. Finally, every family should work to develop a long term relationship with a local attorney. You never know when you may need legal services of one kind or another and your family attorney can frequently help you or can refer you to another reputable attorney.

(2) MYTH: Estate planning is only for the wealthy.

FACT: 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 in accordance with your desires; (3) caring for a surviving spouse; (4) transferring closely held business interests (5) transferring ownership of property in another state; (6) charitable giving; (7) avoiding probate; (8) avoiding taxes; and (9) care of pets.  Finally, regardless of how much money one has, an estate plan is simply a set of directions for the distribution of your assets after you pass.

(3) MYTH: I am too young for an estate plan.

FACT: This is only true if everyone knew when they would die or become incapacitated. Furthermore, everyone needs to have a health care power of attorney in place to enable someone to make health care decisions for them in the event they become incapacitated, as well as financial decisions.

(4) MYTH: Once an estate plan is developed, the individual can forget about it.

FACT:  It is necessary to periodically review and update an estate plan. Changes in one’s family situation, the economy or tax codes can be the harbinger of change to your estate plan.

(5) MYTH: The estate tax was repealed so I don’t need an estate plan.

FACT: Under the current federal estate tax laws, the estate tax has been repealed for 2010.  This does not mean you do not need an estate plan.  The repeal will soon end and government plans on implementing a new estate tax by year end.  In addition, many states have their own inheritance tax completely separate from the federal estate tax.

(6) MYTH: If I die without a will, the government will take all of my assets.

FACT: If you die without a will or trust, it is called “intestate”, meaning the state will determine how to dispose of your assets. In Pennsylvania, the state provides the surviving spouse and/or children with all the assets depending on the circumstance.  Certain assets pass by “operation of law”, meaning that they are not distributed according to a decedent’s will or trust, or under the intestacy rules.  For example, joint tenancy bank accounts pass to the surviving joint tenant.  Other assets that pass by operation of law are retirement accounts and life insurance proceeds which pass to the named beneficiaries. However, it is prudent to draft a will so there are no misunderstanding with the court and more importantly your heirs.

(7) MYTH: Having a will avoids probate.

FACT:  A probate court determines how your estate will be distributed. Probate proceedings must take place to transfer ownership of real estate, to appoint a guardian for minor children, and to appoint an administrator. If the will is valid and uncontested, the court monitors administration of the will to ensure the decedent’s wishes are followed accurately and in a timely fashion.

(8) MYTH: A will covers disposition of all your assets.

FACT: A will only covers property titled in your name alone at your time of death. Property such as jointly held assets, retirement plans, and life insurance will pass to the surviving owner or designated beneficiary.

(9) MYTH: Placing a will in a safety deposit box is best place for safe keeping.

FACT:  Pennsylvania law mandates that a deceased person’s safety deposit box is sealed upon death.  Pennsylvania law permits qualified individuals to enter a deceased person’s safety deposit box in the presence of a bank employee to determine if there is a Last Will.  In spite of Pennsylvania law however, many banks’ internal policies only permit entry by the personal representative of the deceased person’s estate.  This results in the need to open an estate as if the individual passed away without a will.  Once the will is retrieved, it must be brought to the Register of Wills so that the personal representative named in the will can be sworn in.  Obviously, needless expense and delay could have been avoided if the will was retained in a safe place other than the decedent’s safety deposit box.

(10) MYTH: I have a will, I don’t need a trust.

FACT: A will does not help you manage your property in the event you are incapacitated. A will only comes into effect at death. A well drafted trust has provisions for how your property should be managed in the event you become incapacitated.

(11) MYTH: Everyone needs a trust.

 FACT: Trust planning is advantageous in several situations, including second marriages, families who wish to provide for adult/minor children, including a child with a disability, and high net worth individuals who hold certain types of assets.

(12) MYTH: If I have a trust, the trustee will take all of my money.

FACT: If a person transfers his or her assets into a revocable trust, the trustee of the trust becomes the manager and custodian of the trust assets.   The trustee has a fiduciary duty to make distributions from the trust according to the terms of the trust document.   Most often, the person who creates a revocable trust serves as the initial trustee, and retains control over all investment and management decisions, as well as all distributions from the trust.

(13) MYTH: I have a revocable trust, so when I die nothing will need to be done to administer my estate.

FACT: A trust, much like a will, is a set of directions for the administration and distribution of an estate at death.  A trustee must (a) determine the extent of assets held in the trust at death, (b) determine the value of all of the trust assets, (c) provide for the preparation and filing of a federal (and perhaps state) estate tax return if the estate reaches a certain value, (d) insure that any estate taxes are paid, (e) pay all outstanding and legitimate debts and other expenses, and (f) distribute the trust assets as described in the trust.

(14) MYTH: I should name my estate as beneficiary of my IRA/Life Insurance.

FACT: It may be necessary to name a trust as the primary beneficiary. Only one certain occasions will a person name their estate as beneficiary of those assets.

(15) MYTH: All trusts avoid estate tax.

FACT: All trusts do not avoid estate tax. Property in a revocable trust is subject to estate tax. Property in an irrevocable trust, however, is generally not subject to estate tax.

(16) MYTH: Avoiding probate saves federal estate taxes.

FACT: Avoiding probate does not save taxes. The probate system deals with state law and the manner in which property passes at death from a decedent to others. Federal Estate Taxes and Pennsylvania Inheritance Tax are determined by entirely separate bodies of law.

(17) MYTH: If you have a revocable trust, your surviving spouse does not need to do anything after your death.

FACT: After the death of a spouse, the surviving spouse should contact an attorney familiar with probate and trust administration to determine if any actions need to be taken. Failure to follow the legal formalities after death can have serious tax and administrative implications. Although a fully funded living trust allows you to avoid most probate rules, it does not allow you to avoid all legal and administrative obligations.

(18) MYTH: Transferring property into a revocable trust prevents creditors from accessing those funds or assets.

FACT: A revocable trust does not provide creditor protection. Since a grantor of a revocable trust controls the funds or assets of the trust, a creditor can normally reach the property in such a trust. There are certain types of irrevocable trusts that may provide creditor protection.

(19) MYTH: A nursing home can take my home away from my family.

FACT:  Nursing homes DO NOT take people’s homes.  If you have an intent to return home, no matter how unlikely, your home cannot be considered as a resource available to pay for your care while residing at a nursing home.  You therefore cannot be compelled to sell your home under those circumstances.  If this is your only asset (and your equity is less than $500,000.00), you will most likely qualify for Medicaid.  Your residence will be subject to a Medicaid lien if it remains in your estate upon death.

(20) MYTH: Giving away my money is the only way I’ll qualify for Medicaid.

FACT:  There are several different ways to qualify for Medicaid without giving up total control to your money. However, based on new federal regulations, Medicaid will now require you to provide financial history account statements for five years prior to your Medicaid application. The lesson for those who feel they may need nursing-care is to purchase long-term care insurance, and consult with an Elder Law attorney.