There are numerous myths associated with estate planning that we commonly see in our practice.
I do not need estate planning because I’m not wealthy, sick, or old. This is by far the most common estate planning myth and it is simply not true. If you have people in your life that you care about, then you need estate planning. Most of the time estate planning is not about the money. It’s about people. Everyone old enough to sign estate planning documents should highly consider executing an estate plan. Part of the problem is that people that believe this myth do not realize that they already have an “estate plan.” If you don’t draft a plan, then your state has one for you. Only after I summarize the state’s default estate plan, do people suddenly realize a sense of urgency related to estate planning.
All I need is a simple Will. This is usually a myth for several reasons. First, nearly every family that I have encountered in my practice has at least one complex issue that should be addressed with proper planning. Examples of some complicating issues include: minor children, children from a prior relationship, tax planning, and disinheriting a family member. An estate attorney’s responsibility is to discuss each of the issues with the client. Ultimately, it’s the client’s decision to implement a “simple” Will or to implement a more comprehensive plan. Second, in addition to a Will (whether simple or more complex), it is also important to plan for incapacity with a Durable Power of Attorney, a Health Care Power of Attorney, and a Living Will. Third, a Will is not the default mechanism to directly distribute every type of asset. For example, some assets may be distributed by a title (e.g., your residence) or via a beneficiary designation (e.g., your retirement account and life insurance). Every estate plan should address these additional assets.
Since I’m not ultra-wealthy, I do not need to worry about estate tax. Even if you are under the federal estate tax exemption amount (currently over $12M in 2022), there are several other ways that your estate or your beneficiaries may be subject to a tax following your death. Pennsylvania has an inheritance tax that often starts at the first dollar. PA’s inheritance tax is 0% to spouses and charities, 4.5% to children and grandchildren, 12% to siblings, and 15% to all other people. Also, if you leave a tax-deferred retirement account to a beneficiary, the beneficiary will have to pay income tax on the withdrawals. I refer to this issue as a hidden estate tax. If those retirement account withdrawals are large, the beneficiaries should also prepare for an equally large income tax obligation.
Everyone should have a Revocable Living Trust (RLT). In stark contrast to some earlier listed myths where people do not think they need estate planning, people believing this myth often think they need more complex planning because someone told them they need it. While some states have very costly and time consuming probate administration processes, Pennsylvania’s probate administration process is not overly burdensome. Some valid reasons for PA residents to execute an RLT is to avoid probate in other states where they own property (e.g., a vacation property), for additional incapacity planning, and/or to preserve privacy. An RLT will not hurt you, but the burden and cost required to properly implement them may not be necessary.
I should leave my assets outright to my beneficiaries. In some situations, leaving property outright to beneficiaries may be the simplest plan. However, as I mentioned in Myth #2, not all family circumstances are simple. Instead of an outright distribution, it is often desirable (and sometimes required) to add asset protection to your estate plan by distributing assets to beneficiaries via a testamentary trust (a trust that is triggered in your Will upon your death). It is common to implement testamentary trusts for children and young adults, as well as, for spouses when you have children from a prior relationship. An outright distribution is simple, but provides no asset protection.
Please call our office at (610) 444-4555 to discuss your estate planning questions and concerns.