Common Estate Planning Misperceptions

One dictionary definition of the word “misperception” is a wrong or incorrect understanding of something. Often, misperceptions result in faulty decision-making or inaction to address a pressing situation. A financial example where misperceptions are common is estate planning.

 

Below are eight common estate planning misperceptions:

Estate Planning is for “The Rich”- No matter how modest their net worth, most adults own some property (e.g., a car, a bank account, and perhaps a house). Without estate planning documents (e.g., a will or trust), property will be distributed according the state intestacy laws.

 

My Will States Who Gets my IRA- Two of the largest assets for many people, life insurance and qualified retirement plans (e.g., 401(k) and 403(b) plans and IRAs) are transferred via beneficiary designation- not via a will. It is wise to name both primary and secondary beneficiaries.

 

PoD and ToD Are the Same- A Payable-on-Death (PoD) designation is usually used for bank products such as checking and savings accounts and certificates of deposit (CDs). A Transfer-on-Death (ToD) designation is typically used for brokerage accounts. In addition, 28 states allow real estate to be transferred with a ToD designation and 19 states allow its use for vehicles.

 

My Spouse Can Make My Decisions- Some people think that their spouse can make financial and medical decisions for them without ancillary documents. This is incorrect. For example, a spouse cannot sell someone’s interest in a property without a durable power of attorney or make end-of-life medical decisions without a living will and named health care surrogate.

 

Having a Will Avoids Probate- Wills govern any property held in an individual’s name (that does not have a named beneficiary) and provide for the administration of that property through the probate process. This includes paying a deceased person’s debts and transferring assets to heirs. Probate can be costly and includes court filing fees and attorney and/or executor fees.

 

A Will or Trust Trumps a Beneficiary Designation- Not true. If there is a conflict between the terms of a beneficiary designation and a will (i.e., between the person(s) named to receive a deceased person’s assets), the beneficiary designation takes precedence.

 

A Durable Power of Attorney Automatically Becomes Executor- Not necessarily. This would only happen if the same person were named in two separate documents: a durable power of attorney advance directive and a will. A durable power of attorney agent is only authorized to act while a person is incapacitated and the agent’s power ceases when the document creator dies.

 

Out-of-State Wills Are Not Valid if You Move- Wills from another state may or may not be valid but, even if they are, may not work well with the new state’s laws and procedures. It is best to have a prior state will reviewed by an attorney in the new state of residence.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.