Most people put estate planning on the back burner for obvious reasons. Passing away is the last thing on your to-do list, but at the same time, it is an inevitability. Ignoring it will not make the necessity go away.
Those that do start to think about the subject often come across “insight” that is actually misleading or downright false. These misconceptions can lead to mistakes that yield negative consequences.
With this in mind, we will take a look at some of the most common estate planning misconceptions in this post.
Inheritances Are Taxable
The first ill-conceived notion that we will debunk is a piece of good news. You may assume that inheritances are considered to be taxable income, and you may also have concerns about estate taxes.
In fact, you do not have to report an inheritance on your income tax returns. This is because resources that you are inheriting were left over after the person who left you the inheritance paid taxes.
Secondly, there is a federal estate tax, but there is also a high credit or exclusion. At the time of this writing in 2024, the exclusion is $13.61 million. However, it is going down to the 2017 level of $5.49 million indexed for inflation at the beginning of 2026.
We should point out the fact that there are state-level estate taxes in 12 states and the District of Columbia. Fortunately, California is not one of those states, so people in our area are in the clear unless you own very valuable property in one of these 12 states.
Estate Planning Is for Senior Citizens
Obviously, most people do not pass away when they are under the age of 70, but it does happen every day. As soon as you are a self-supporting adult, you should think about putting a basic estate plan in place.
If you have a partner or children, estate planning becomes an absolute must. When you go through life without a contingency strategy, you are putting your loved ones at risk.
Trusts Are Reserved for the Wealthy
You can use a will to arrange for asset transfers but trusts of different kinds can be far more useful. A lot of people do not even look in this direction because they have been told that trusts are only for the wealthy.
Yes, high-net-worth individuals use certain types of trusts to gain estate tax efficiency. At the same time, there are other trusts that can be beneficial for people of relatively ordinary means.
The most widely used trust is the revocable living trust. As the name would indicate, you can revoke the trust at any time. Plus, you act as the trustee while you are living, so you have complete control of the assets on every level.
After you pass away, the trustee that you choose to succeed you will manage the trust. They will distribute the assets to the beneficiaries according to your wishes outside of probate.
This streamlines the estate administration phase because probate is a time-consuming and costly legal process. You can also include spendthrift protections when you have a living trust.
The living trust is just one of the options that you can take advantage of when you plan your estate. Your plan should be tailor-made to suit your needs, and a trust can be the ideal solution under some circumstances.
The State Will Sort Things Out
Some of the unprepared people are not too concerned because they think that the government will make sure that their resources get into the right hands. While it is true that the probate court will step in, intestacy is never a good thing.
First, the situation is unnecessarily complicated. Secondly, when the final wishes of the decedent have not been stated, family members may clash with one another.
Thirdly and most importantly, at the end of the day, the assets may not be distributed in a manner that is consistent with the true wishes of the decedent. There is no reason to roll the dice without an estate plan when legal assistance is just a phone call away.
Estate Planning Is Strictly Financial
A well-constructed estate plan will consider the eventualities that you may face toward the end of your life. Unfortunately, Alzheimer’s disease strikes over 30 percent of the elderly, and this is not the only cause of incapacity.
If you do not prepare for possible incapacity, a conservator can be appointed to manage your affairs if necessary. You can take the matter into your own hands in advance and choose your own decision-makers when you plan your estate.
From a medical perspective, you should include advance directives for healthcare. A living will is a document that is used to record your life support utilization preferences. You can also add your organ and tissue donation and pain relief medication choices.
On the financial side of the equation, if you have a living trust, you can name a disability trustee. This individual or entity would administer the trust in the event of your incapacity.
To account for assets that are not held by a trust, you can add a durable power of attorney for property.
Finally, your plan should include a HIPAA release form to make it clear that you want your health care agent to have access to your medical information.
Schedule a Consultation Today!
When you work with our firm to plan your estate, you will be dealing with completely sound information. Your options will be explained to you based on your unique situation and your objectives. Ultimately, you will be in a position to make fully informed choices.
At the end of the process, you will go forward with a tailor-made plan that is ideal for you and your family. Over time, we will always be available to revise your plan when things change.
To set the wheels in motion, call our Chico, CA estate planning office at 530-343-3454 or send us a message through our contact form.