5 Common Myths Surrounding Estate Planning
Most of us don’t know a lot about the laws regarding estate planning. After all, they’re topics none of us really want to deal with. However, everyone should endeavor to at least understand the basics, and we should know enough to recognize common myths when we run across them. Here are a few misconceptions that we’ve heard over the years.
The state receives everything if someone dies without a will.
There are several reasons to create a will, but fear of the government seizing your family’s inheritance is not one of them. State law takes over if you die without a valid will (the legal phrase for this is dying “intestate”). Each state has different inheritance laws.
Your spouse and children are generally the first people to inherit. The criteria differ by state, but a surviving spouse and minor children share the deceased parent’s assets in some jurisdictions. (And there’s a good reason to create a will: You wouldn’t want your eight-year-old to inherit part of your bank accounts, would you?)
Is it possible for an asset to ever go to the state? Yes, but only if there are no relatives who can take possession of your assets. The state will not obtain your assets as long as your trustee (the person in charge of wrapping up your estate) can discover your uncle’s long-lost grandchild. “Escheat” is a term that refers to this, and there’s a purpose for that — however, escheat is relatively uncommon.
Tip: Make a will! Even if the state doesn’t get your money, you’ll still want to choose who gets it — so don’t leave it up to state legislation. It’s simple and does not cost much to create a will.
It might take years to probate an estate.
It’s not unusual for cases to be resolved in months rather than years, and the typical delay is simply the time mandated by state law, which allows creditors to file claims. If things are complicated, this can be from one year on the low end to three or four months on the high side. The length of this creditors’ claim window varies from state to state.
When the waiting period has passed, the estate can be closed as soon as the personal representative has gathered all assets, settled obligations, and paid taxes. (In states that do have an estate or inheritance tax, the estate may need to obtain a clearance letter from your state’s department of revenue.) In practice, it usually takes a few months longer to put everything in order, and however, most estates are completed within one year.
What leads to some probate dragging on for years, then? There are three primary causes:
Family Arguments. If a family member or siblings can’t agree on how to apportion a parent’s assets after the will is challenged, the court may be required to intervene.
Extremely Large Estates . Things get more complicated if the estate is so significant that it owes federal or state estate tax. There’s no way the estate can be settled ahead of time since an estate tax return is often due nine months after the death, and many estates are given a 6-month extension to file because the process is too complicated. However, approximately 99.5% of estates do not pay federal inheritance taxes, and fewer than 20 states have estate taxes.
Continuous Income. Finally, there are the famous estates that we hear about in the news—those of celebrities such as Michael Jackson or Marilyn Monroe, for example. For decades after their death, these properties continue to generate revenue (in some cases millions of dollars worth).
Tip: Although the time it takes to complete probate and handle your estate planning is typically short, it can nevertheless take years. Look into simple strategies for avoiding probate, and you’ll save your family this undue stress.
The cost of probate is going to eat up all of the estate assets.
There are many terrifying tales about how much probate costs. You might think that your family would receive nothing after the lawyer fees and court charges are paid if you believe the worst of them. Fortunately, this is not true.
Most deceased people’s assets do not require probate in the United States, and only assets held in the decedent’s name alone must go through probate. Probate shortcuts are also less expensive than standard probate if the “probate assets” value is modest enough.
Even if the estate is required to go through formal probate, costs will likely be far lower than 5% of the estate’s value. It costs several hundred dollars to initiate a probate case in most states, as well as a few hundred more to publish legal notifications and a few thousand dollars for an attorney to take care of everything. Add a couple of hundred bucks for miscellaneous expenses like appraisals and court documents certified copies. That’s all there is to it.
There are two significant caveats, however. In certain circumstances, where probate costs may skyrocket:
High attorney-fee states. Most attorneys charge a percentage of the estate’s value in a few states rather than a flat fee or an hourly rate, and California is one of them. An attorney fee of $21,000 would be incurred in probating a $900,000 estate in California—which is almost certainly much more than the work is worth. (And the charge is calculated on the estate’s total value; thus, mortgages are not deducted.)
Litigation over the estate . Costs can immediately rise if a will is contested or if the executor of an estate is accused of misconduct. The estate will have to obtain legal counsel to defend it, and if the argument goes to court, it can cost thousands more in legal fees.
Tip: If you live in a state where attorneys may charge exorbitant fees, make sure your executor understands that the extra charges aren’t required. A reliable lawyer should be able to set a fixed price or hourly rate.
I don’t have to leave my spouse any assets during estate planning.
Many couples do not want to leave each other significant assets when deciding how to go about their estate planning. They may, for example, decide that each will give most of their assets to their children from a prior relationship or to charitable causes. Most couples in second marriages, especially if they wed later in life, are primarily concerned with providing for their kids from a prior relationship.
However, this may suffice if the first spouse dies while the surviving spouse is still content with the arrangement. When circumstances have changed, or the survivor merely changes their mind, difficulties can arise. State law gives surviving spouses the option to refuse to participate in their partner’s will and instead seek what some jurisdictions refer to as the “elective share” of his estate. This is also known as “taking against one’s will.”
The property is divided according to state law, which varies significantly from state to state. The survivor’s share of the estate may be one-third, a year’s support, or the right to live in the family home—it all depends on the law in the specific jurisdiction. In some jurisdictions, the more significant share awarded to survivors is linked to how long they were married.
Tip: If you don’t want to leave property to each other in your wills, see a lawyer and talk about them. You’ll need to sign waivers giving up your right of redemption against the will.
As the oldest child, I will automatically be the executor of my parent’s estate.
The fact that you were always the responsible one—or simply bigger and stronger than your little siblings—has no bearing when it comes to administering a deceased parent’s assets.
The court would select an executor if one were named in the deceased person’s will unless there is a substantial reason not to do so. (A felony conviction or significant disability that makes it impossible to fulfill the responsibilities are just a couple of examples.) If no will exists, or the individual named as executor cannot or does not want to serve, the court will designate someone. Courts are not concerned with the order in which your brothers and sisters were born. Instead, the court looks to state legislation, laying out a priority list for whom the court should pick. In some states, the surviving spouse (or registered domestic partner or civil union partner, depending on the state) is first in line, and adult children follow next.
If more than one child wishes to be executor, they can collaborate as co-executors, which may lead to family discord. It’s typically preferable for siblings to decide that one will serve as the personal representative and keep the others updated on the probate court process.
Tip: If you believe you should serve as the executor, consult with your parents about including you in their wills while performing their estate planning. Also, if you’re making your will as a parent, name the child you feel is most responsible and conscientious; don’t name all of your children unless you genuinely think it’s best for all of them to serve as co-executors.
If you still have many questions about the way probate or estate planning works, we highly recommend you contact our office to help you figure things out before you end up in a bad situation. Call 509-328-2150 today to schedule a quick consultation with our estate planning attorneys, who can help you set the record straight on the laws surrounding probate in Washington or Idaho.
Want to read more about common estate planning myths? Forbes has a helpful article that covers the same topic.