Estate planning should be a practical exercise for taking the assets you have, protecting them while you are alive and distributing them to the people and organizations you want to support after you die.
However, a recent Caring.com survey shows only four out of every 10 American adults have an estate plan. Many who resist creating one are discouraged or dissuaded by popular misconceptions.
Common myths to avoid
Failing to create an estate plan can happen due to misinformation and the emotions it causes. Here are four common myths:
Myth: Estate plans exist only to lower taxes
- Tax mitigation is an essential aspect of estate planning. But it has become less important since the federal transfer tax exemption stands at $11.5 million in 2020, affecting fewer than 3% of taxpayers. Estate plans should be focused on managing assets, such as a family business.
Myth: You should leave everything to your children
- While your kids are likely to receive the bulk of your estate, working with an experienced estate planning attorney can help ascertain where your life’s work is best put to use. That may include support for charitable causes or even creating your own foundation managed by your children.
Myth: Each child should receive an equal share
- While most parents don’t want to show favorites, children have different skills and aspirations. Leaving a company to a child with exceptional business skills can help it grow. Assigning equal shares can be detrimental when some beneficiaries are unable or unwilling to devote their time and energy.
Myth: Setting up a trust will take care of all your assets
- Many benefits exist for setting up revocable or irrevocable trusts for managing large estates. However, the type of trust and who you select to manage it is vital. Appointing a spouse or child as a trustee can create a great deal of strain when other family members are beneficiaries.
Focus on your objectives
Providing clear instructions to your estate planning lawyer is crucial for finding the best strategy. Managing your wealth and legacy may best be served with a creative approach that includes lowering taxes and determining the best way to match assets to children.
Depending upon your estate’s size, trusts may aid in achieving those goals, but exercise care and caution when choosing who will manage them. Taking an open and comprehensive approach can be the most efficient way of passing your wealth to the next generation.