No matter where you are in life, it is important to have a grasp of the basics of estate planning and administration. Common misunderstandings on how things work can hold you back and put your legacy in danger.
Missteps could also cost you money or deny your heirs the full value of their inheritance.
The value of an estate plan for everyone
Forbes stresses that not just the wealthy need a viable estate plan. Whether or not you are worth millions, an estate plan contains critical documents. One area of concern is what happens in the event of incapacitation. Who will make the important financial decisions at this critical juncture? A plan can also make sure medical professionals follow your healthcare directives if you cannot express your wishes.
Another misconception is that a will keeps your assets from going to a probate court. In essence, a will is a valuable and necessary document for just about everyone, but it does not in all circumstances circumvent probate. Additional legal documents such as trusts and beneficiary forms can help streamline the process and avoid or minimize the time and expense of probate proceedings.
The importance of tax planning
Many people experience confusion when it comes to the tax ramifications of passing on money to heirs. Trusts do not automatically avoid estate taxes, but they can help reduce your tax liability. Also, it is important to know that while the threshold for paying estate taxes is pretty high, it includes all of your assets; in other words, you might have a higher net worth than you think.
A better understanding of estate planning is a good thing. Believing in common estate planning myths can put a wrench in your goals.