When it comes to finances, everyone understands that planning for the future is vital. Still, some believe that estate planning is only for individuals in specific situations.
Here are some common misunderstandings that persist about estate planning.
1. You need to be a certain age to create an estate plan
The reality is that death can grab us at any time. Once that happens, the opportunity to build an estate plan is forever lost.
2. You need to be wealthy to create an estate plan
This myth exists because of a focus on the estate tax, which only affects those who have millions. Estate planning deals with much more than that, including:
- Health care decisions
- Financial instructions during incapacitation
- Inheritance directives
Estate planning applies to everyone.
3. You do not need an estate plan if you have a will
Wills never cover assets such as life insurance and 401(k)s. These documents name their beneficiaries within them. Estate planning verifies that these documents are accurate and match your giving plans.
4. You do not have to pay estate taxes if you have a trust
Most trusts do not protect you from paying estate taxes. Making the right choices when it comes to trust formation is critical.
5. You have to pay a gift tax if you wish to give someone over $15,000 per year
You only need to pay gift taxes once you are past the gift tax exclusion amount. Note that this rule does not apply when you donate to an institution or charity.
Estate planning is essential for everyone. Take time to plan and verify that every legal document with your name on it correlates with your wishes.