Estate Planning Myths

Myths, Legends, and the Rite of Passage

As someone who navigates the complex seas of estate planning, administration, and trusts, I often get questions from friends and family about the mystical world of estates. ?They tell me stories they've heard or things they read which sometimes worries me they have been misguided or misinformed.? I often forget that it’s a niche area and outside of the wealth and estate planning world, estate law can be very confusing fraught with myths and misconceptions.?

In the realm of estate planning, I think there is a rite of passage for us to debunk these myths.? So, in keeping with tradition, here’s my contribution to clear up some confusion and debunk or demystify some of the estate planning myths we commonly hear.

Ten Myths of Estate Planning?

1) “My family will inherit my debt” - While the rest of the list will be in no particular order, I feel very strongly about listing this one at the top because this always worries a lot of people.? Everyone, repeat after me: You do not inherit debt.? The debt belongs to the deceased individual and their estate.? Unless there are other factors such as co-signing on a debt, acting as a guarantor, or some sort of agreement to take on the debt, it does not magically transfer to the next of kin.? This myth often leads to a lot of confusion and reluctance to deal with the estate, or sometimes worse, third-party creditors trying to convince surviving family members that they are responsible for another’s debt.

2) “My spouse will receive everything when I die” - A bit of a variation of number 1 but this is also untrue.? Your assets, when you die, will generally go to whoever you leave them to in your will (subject to a few rules).? If you die without a will then the laws of intestacy will apply which are similar to legal formulas that split an estate amongst surviving family members.? Different places have different rules, and some even include a 'forced heirship' policy that requires a very specific party to inherit specific property. ?It is, therefore, important that if you want your surviving spouse to receive the entirety of your estate, you should have the necessary plans in place.

3) “Estate Planning is only for the wealthy” - Estate planning isn’t reserved for some secret club or super wealthy group of individuals.? It’s not all about trusts, off-shore accounts, or a web of corporations leading to the syndicate.? Having an estate plan may be even more crucial for smaller estates where every asset will be important in supporting your loved ones.? As your estate gets more complex it may be worth adopting more complex techniques, and strategies.???

4) “I can do this on my own. How hard can it be?” - I will admit it, I get incredibly angry whenever I have to assemble furniture because the instructions are always unclear or the pictures aren’t helpful. Sometimes I’ll jump on YouTube for help and find something helpful and other times the instructions will be for everything but the item I need help with.? The point is it’s not easy to do your own estate planning and very difficult to research and draft the necessary legal documents.? It’s very easy to make a mistake and these mistakes can have catastrophic results or penalties.? I always recommend consulting a professional to help with your estate planning as they will have the skill set to get things done and will also bring a wealth of knowledge to things you may not even know existed or should be considered.? Long story short, go get professional help.

5) "I'm still young, I still have time" - Does anyone here remember the Oregon Trail?? One of the greatest games of all time!? Remember how in that game you would randomly be hit with dysentery out of nowhere and then it's game over, GG? If you know, you know…. The point I’m trying to make while paying homage to one of the greatest old-school games ever is that sometimes these things are unexpected and you can’t plan for them.? Would it be nice to have a crystal ball or have your time left on this world displayed on your arm like Justin Timberlake in the movie “In Time”?? Sure, but the reality is life is unpredictable and we should try to plan as much as possible and have mechanisms in place.?

6) “It’s too expensive” -? Costs are sometimes a prohibitive factor for some to have an estate plan but I assure you, the costs of not having a proper plan in place can far exceed any financial outlay of drafting a will, power of attorney, or settling a trust.? Without a clear plan, family members and beneficiaries can find themselves embroiled in confusion.? Disputes, confusion, and potential litigation cost far more - financially and emotionally. Think of estate planning as an investment in peace of mind.

7) “I’ve already done my planning, my job is done” -? Estate planning isn’t like the?Ronco Rotisserie oven where you “set it and forget it.”? Life is full of twists and turns or plot twists that sometimes come out of nowhere.? A regular review of your estate plan will help ensure that your plan is still appropriate and effective.? There may be unintended consequences to your estate plan caused by another life event such as changes in marital status, sales of a business, or additions to the family.? You should visit your plan whenever there is an important life event or periodically every few years to make sure it still suits your needs.

8. “I’ll do what my friend did for my estate plan” - Admit it, we’ve all done it.? At some point in our lives, we’ve peeked at our friends’ work or borrowed some of their strategies but do this in your estate plan at your own risk.? We always say that everyone has their unique circumstances and goals so your estate plan should be unique to you.? You don’t necessarily need a family trust simply because Clark Griswold down the street recently set one up.? You should always tailor your estate plan to your specific needs, assets, and goals to ensure your objectives are taken care of.? Just remember, this is your story, not someone else's.

9. “My Family knows exactly what to do when I’m gone” - Do they? Do they really? Are you absolutely sure that when the time comes they know what to do if you haven’t laid out all the groundwork?? Do they know what your assets are and what to do with your assets?? My recent article on collectibles is an example of some issues of what could happen if your executor doesn’t know what to do.? Having the proper plan in place, making sure everyone knows what to do, and providing clear instructions helps with peace of mind for everyone involved.? As part of your estate planning you may even discover that you want a third party such as a corporate executor and trustee to deal with your matters to handle complexities and reduce the burden on your loved ones.

Hidden Treasures: The Unseen Value of Collectible Cards and Your Estate Plan

10. “I need to avoid probate at all costs” – There isn’t a shortage of articles talking about probate avoidance and the costs associated with the process but probate isn’t always a bad thing.? Probate is the judicial process to recognize there is a valid will and to confirm to third parties who the executor is which can be very helpful in the smooth administration of the estate.? There will indeed be probate fees which may vary from region to region but probate isn’t as scary as some would lead you to believe.? While there are costs associated with obtaining probate and useful strategies to avoiding it, there are sometimes benefits of having the added layer of legal oversight and clarity that it brings to the estate administration process.

Conclusion

Starting your estate planning journey can be scary and confusing.? There’s information everywhere and some will be right, some will be wrong, and some may or may not apply to your situation.? Navigating through this maze can often feel like an uphill battle or swimming against the current.? It’s important that you have the right team in place and you consult with the experts to craft a plan that’s unique to your circumstances and objectives.?? The peace of mind of knowing your loved ones are taken care of and your legacy is in place is worth the journey.? Hopefully I’ve helped demystify some of the myths in estate planning and motivated some of you to start your estate planning journey or review your estate plan.? Until next time, remember estate planning isn’t reserved for the rich and wealthy, it’s meant for everyone and we should all have a plan in place.

This posting is my own and does not necessarily reflect BMO's position or viewpoints. The information herein does not constitute any financial, legal, tax, investment or other advice.