Busting Some Estate Planning Myths

An estate plan consists of four essential documents: a last will, a living trust, a financial power of attorney, and a medical power of attorney and advance directive, according to the article titled “Common Estate Planning Myths” from The Street.

These documents must be well-integrated, funded, and aligned with your financial plan. Many common misconceptions exist about estate planning and how these documents work together to create a roadmap for your legacy. Let’s explore them.

Myth: "I don't need a will because everyone knows what I want them to get when I die." Fact: A last will is a legal document outlining how you want your assets to be collected and distributed after death. Without it, the laws of Texas and judge will determine the distribution of assets. The last will names an executor responsible for managing assets, paying debts, and distributing the remainder to beneficiaries you specify. A last will also designates a guardian to care for minor children upon your death.

Myth: “If you have a trust, you don’t need a will.” Fact: Even if you have a trust, you still need a will.

For a trust to be effective, it must be funded, which means transferring assets from individual ownership to the trust ownership. People often forget to transfer assets, or something unexpected occurs. For example, if a person creates a trust but becomes incapacitated before assets are transferred, the last will controls the distribution of assets.

Myth: “Trusts are only for ultra-high net worth people.” Fact: Everyone can benefit from a trust.

Trusts are used to retain privacy, control assets, plan for incapacity, and avoid probate. Trusts can also be helpful when family dynamics are challenging or if you want to assert control over assets even after death. Consider a married couple with a net worth of $1 million who die prematurely with two children in their 20s. Each child inherits $500,000. Twenty-somethings may not be ready to handle large sums of money. A trust would allow the heirs to receive smaller amounts over years, not all at once.

Myth: “I have a trust, so I don’t need a power of attorney.” Fact: You need a power of attorney.

Some assets cannot be owned by a trust, including IRAs, which an individual must own. If you become incapacitated and do not have a power of attorney, no one will be able to oversee investment management, Required Minimum Distributions, or pay bills. Your spouse or another family member must petition the court to appoint a conservator to manage financial affairs.

Myth: “My loved one is in the hospital. However, I’m their spouse/daughter/sibling, so the hospital will tell me about their medical status and let me make decisions for them.” Fact: Protecting patient confidentiality is the law, and healthcare facilities must adhere to all state and federal guidelines.

An 18-year-old who suffers an illness or injury is legally an adult. Parents have no legal right to medical information or decision-making without a medical power of attorney and a HIPAA release form. They cannot speak with the insurance company or doctors, or make decisions about their loved one’s care.

A comprehensive estate plan, including a last will, financial power of attorney, and health care proxy, is something every adult should have. Speak with an experienced Austin estate planning attorney to protect those you love and prepare for the future.

Reference: The Street (Jan. 6, 2023) “Common Estate Planning Myths”