Many Americans have misconceptions about how estate planning works. And understandably so — it’s a complex topic, and there’s a great deal of misinformation out there.
To help provide clarity, here are a few common misconceptions, along with insights to help you make informed decisions.
1. Creating a trust automatically protects your assets.
Many people assume that once a trust is drafted, their assets are fully protected. But a trust is essentially an empty container until you fund it. This means you need to formally transfer assets such as real estate, accounts, or insurance policies into the trust. Without doing this, your assets will likely go through probate, which can create unnecessary delays, expenses, and challenges for your loved ones.
2. Estate planning is only about what happens after you pass.
Estate planning isn’t just about making a plan to distribute assets once you pass; it’s also about making sure your wishes are followed if you become incapacitated. A thorough plan often includes documents such as a health care directive, a HIPAA waiver, and medical and financial powers of attorney. This enables trusted people to make medical and financial decisions based on your directives if you are unable to do so.
3. Disinheriting someone means leaving them one dollar.
This old myth persists, but it is not true, and can actually create more problems. Leaving someone a small, symbolic amount (like one dollar) can legally make them an “interested party,” potentially giving them the ability to contest your estate. Additionally, keep in mind that simply removing someone from your will is not the same as disinheriting them.
If there’s someone, such as an adult child or other relative, who would reasonably expect to inherit from you, it’s typically best to explicitly state your intent to disinherit them in your estate plan. Situations where formal disinheritance may be used include:
- Estrangement from a child or relative.
- Specific wishes to divide your estate unequally.
- Concerns about how someone would handle an inheritance.
- Prior gifts or financial support already given in lieu of inheritance.
