7 Estate Planning Misconceptions

Estate planning can be complicated. There are many estate planning misconceptions that make it seem even more complex. In this article, we will clear up 7 estate planning misconceptions.

1. If You Die Without a Will, the State Gets Your Assets

One of the common estate planning misconceptions is that if you die without a will, the state will get your assets. This is not true. If you die without a will your assets will be distributed by your state’s laws of intestacy. These laws dictate the level of family relation that will receive your assets. For example, if you die and you are married, your spouse will inherit all your assets. However, if you die without a will, without any heirs or creditors, the state may inherit your estate.

2. Trusts Avoid Estate Tax

In 2024 any estate funds under $13.61 million are not subject to estate tax. This is per person. A revocable living trust will not avoid estate tax if you are over that threshold.

3. You Are Not Worth Enough for Estate Tax

Even if you are not subject to federal estate tax, you may be subject to estate tax at the state level. These thresholds are much lower than the federal estate tax. States that have estate tax include Connecticut, the District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington.

4. You Will Be Subject to Gift Tax if You Give Someone More than $17,000 a Year

Any money you pay to charity, or a 529 plan are not subject to the gift tax exclusion amount. If you gift someone more than $17,000 you reduce your federal lifetime estate tax exclusion. This is $13.61 million per person. Only after you have reached this exclusion amount do you have to pay taxes. However, you may want to file gift tax returns to keep track of the remaining balance of your estate tax exclusion amount.

5. It Is a Good Idea to Name Your Estate as Your IRA Beneficiary

You can name a person or a nonperson as your IRA beneficiary. A nonperson would include a charity, a trust, or an estate. If you name your estate as your beneficiary if creates a greater tax liability at your passing than if you name an individual. When you name your spouse as your beneficiary, they can roll your account into their name without paying taxes right away. If you name another individual, they can spread out the taxes over a nine-year period. There are special IRA trusts that can help accomplish this as well.

6. It Is Enough That My Family Knows How I Want My Assets Split

Just simply letting your family know how you want your assets divided is not enough. The only way to legally enforce your wishes is to execute a trust or will. These documents will legally obligate your family to follow your instructions

7. I Have a Spouse That Will Inherit Everything

You can set up all your assets to pass to your spouse upon your death without probate. But what happens to your assets when you both pass? This is where a trust or will comes in. They will allow you to provide for your spouse and secondary beneficiaries.

Avoiding Estate Planning Misconceptions

You can protect your estate by avoiding these 7 estate planning misconceptions. Start the estate planning process as soon as possible to protect your assets.

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