Common Myths about Estate Planning

Estate Planning is a very complicated area of the law where myths abound and they can be harmful to you and your loved ones.

Below is a list of common myths about Estate Planning:

If I have a good Will, Probate will not be required, and my assets can be transferred immediately to the beneficiaries of the Will. In fact, having a Will mandates a probate in most circumstances and the assets may not be transferred to the heirs for many months. In Arizona, a simple uncontested Probate will take 6-9 months to complete, and often much longer.

Probate is a court proceeding that:
1. Validates your Will;
2. Approves the appointment of your Personal Representative (Executor);
3. Pays the necessary debts of your Estate;
4. Gathers & Protects all of your Estate property & assets; and
5. Transfers assets to the appropriate beneficiaries or heirs.

Probate is required in your state of residence as well as any state where you own real estate. Probate is not only costly in terms of legal and court fees, but also has an emotional cost due to the hassle and delay involved.

Keep in mind that Probate is a public proceeding and anyone can obtain copies of your probate documents, including your Will.

I don’t need a Will if I have a Small Estate. Many people also believe that if they are not “wealthy” all their assets will be distributed to the surviving spouse or children automatically. Unfortunately, there is nothing automatic about it!

In Arizona, if your Estate is valued under $100,000.00 in real estate, AND under $75,000.00 in personal property, you may be able to avoid Probate.

Your loved ones may be able to claim your property using one or several “Small Estate Affidavits” or an “Affidavit for the Collection of Personal/Real Property”, and present them to each institution that holds or controls Estate assets. Each institution will have different rules for dealing with these affidavits, and some institutions are simply uncooperative or unwilling to accept them, and may still require that you file a Probate.

Using the Small Estate process for claiming Real Estate, for example, requires a 6-month waiting period, and so it is often more efficient to simply file a Probate and gain control over real estate within a few weeks.

If you don’t create a valid Will, the state of Arizona has written a Will for you that decides where your assets go and who will administer your estate. Arizona may not distribute your assets to the people you want to have them, and your surviving spouse does not always receive all of your property.

Dying without a Will (“intestate”) generally requires a more time consuming and more costly Probate where you have no control over who becomes your Personal Representative.

If I am not a Millionaire, I can avoid probate. In Arizona, the limits are $100,000.00 in real estate or $75,000.00 in personal property, before Probate is required, unless you use a Revocable Living Trust or some other probate-avoidance technique. These are hardly the numbers of Millionaires, and “personal property” includes both tangible (cars, collectibles, furniture, art, precious metals) and intangible property (bank accounts, certificates of deposit, brokerage investment accounts, etc). Your Estate subject to Probate even includes life insurance, annuities, and retirement accounts that do not have valid beneficiary designations.

A Will Covers All my Assets. Wills do not cover assets held as joint tenants with right of survivorship, retirement plans, annuities, life insurance, financial account with payable on death or transfer on death designations.

You must be careful to have these designations up-to-date and have both Primary and Secondary beneficiaries listed on all such accounts. If any of your listed beneficiaries dies before you do, a probate may be required.

I can Create my own Estate Plan. Some people feel they can perform their own Appendectomy also, but I wouldn’t recommend it.

Estate Planning is more than just creating documents; it is about obtaining RESULTS when there is a crisis in your life – death, disability, or catastrophic illness. Sound Estate Planning understands the big picture of how all assets are affected by a crisis and reflects important changes to local laws.
Estate Planning takes into consideration your small business, your property inside and outside of your Probate Estate. It takes advantage of our unique Community Property laws, when appropriate, and requires maintenance over time, like any valuable thing.

Only the Wealthy Need to Worry about Estate Taxes. Arizona residents are only affected by Estate Taxes if their Estate exceeds $5.49 Million (2017) or $5.6 Million (2018) when they die. Married couples can, if they make the appropriate tax elections, double these numbers to $11 Million plus! So, it is true that less than 1 in 500 people need to worry about Estate Taxes.

However, it is important to understand other taxes that can affect your Estate or your Beneficiaries when you die. Capital Gains taxes and Income Taxes can have a large effect on how much your loved ones inherit. If you leave significant Retirement Assets to the next generation, this can be subject to very high income taxes.

I don’t need an estate plan because I hold all my assets jointly with another. In fact, unless the joint owner is your Spouse, this is one of the worst ways to plan you estate! It is RARELY advisable to add a child or non-Spouse as a joint owner on any important asset.

Joint ownership may expose the asset to estate and gift taxes; it does not avoid probate, just delays it until the last owner’s death; it can often cause contention in a family; it exposes the asset to the creditors of all owners; and it will transfer the property to only the surviving joint owner when one owner dies, which is often not intended.

Estate Planning is planning for what Happens when I Die. “Death” planning is only one part of Estate Planning. There is also “Life” planning to be done. What happens if you are still alive and permanently disabled or incapacitate? How do you want to be cared for? Who will take care of you? What if you do not have the assets to withstand a long-term disability or years of nursing home care?
You must pay attention to your Life Care just as you do with what happens after you pass away.

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You can’t afford to rely on myths when it comes to your estate. Find out the facts, plan carefully and execute a plan to provide you with peace of mind and security for your loved ones.