Why Don't More Real Estate Investors Have Estate Plans?

"You don't choose your family. They are God's gift to you, as you are to them." -Desmond Tutu

4-minute read

Estate Plans are a topic I bring up every year around tax time. You're thinking about money and taking inventory to prepare your taxes…stay focused on this important consideration.

It's a staggering fact that almost 60% of Americans, just like many of us, don't have a basic will, and that's a big problem.

Much of this is because of misconceptions about estate planning regarding these two topics I discussed last year.

1. "Only rich people prepare estate plans." Estate plans are good planning regardless of your income.

2. "Everything goes to your spouse if something happens." This thinking can lead to unintended consequences without proper planning.

I have three more for you to chew on and dispense with.

Bad Reason 3. "After I create my will or living trust, there's nothing else to think about."

If you follow this line of thinking, it could lead to a lot of problems. For instance, once you set up a trust and will, you need to re-title the assets you want to transfer to the trust. Otherwise, the trust doesn't help a thing.

On top of that, families need to periodically update their will or trust to reflect major life events, such as a divorce or the birth of a child. You'll also want to revisit your estate plan if you move to another state.

In fact, it's a good idea to re-evaluate your plan every 3 or 4 years to ensure it is fully up-to-date.

Bad Reason 4. "If I have a will, my estate automatically won't go through probate."

Well, again -- that's not the case. In fact, ALL wills are subject to "probate". Probate is a process in which a court determines whether the document is actually valid and ensures that relatives and creditors receive notices. This process can take several months and drain thousands of dollars from your estate.

So, here's one way to avoid that entirely--create that living trust. A living trust is a legal document you create that holds property (such as brokerage accounts and real estate). The property is smoothly transferred to your beneficiaries when you die or are incapacitated. This transfer occurs outside the probate process, saving a TON of hassle.

Not everyone needs one of these documents, but it's something that you can't paint over with a broad brush, which is why it's important to walk with a competent guide on these matters.

My brother-in-law, Thad Behm, passed away a few years ago. He was on SSI and only had a 1999 Mazda Miata and a suitcase as assets. The car went to his daughter. The whole thing was a breeze...because he had a Living Trust.

By the way, if you own property in more than one state, a living trust is a no-brainer. Going through probate in multiple states is a nightmare.

Another advantage to a living trust is privacy. A will is a public document; anyone can come to the probate hearing to see if any fights break out. Living trusts skip past the courthouse on its way to distributing assets. It is not public, so it offers privacy.

Bad Reason 5. "I could be held responsible for a deceased parent's debts."

No, you're not responsible for credit card debts from your parents.

In general, children aren't responsible for a deceased parent's debts; in some cases, spouses are often exempt. Again...you can't paint it with a broad brush. But as a general rule, the estate is responsible for paying debts. The debts usually go unpaid if there isn't enough in the estate to cover the amount owed.

So really ... there is no "great" reason to avoid this kind of planning. And it would be a great addition to your tax preparation process.

Search for trust attorneys in Trusts and Estates. Do it NOW! As my father-in-law used to say, "It's right on your way home." You have been going through your financial life to prepare your taxes, and this is just a little more effort. The effort pays big dividends to your heirs in the future. Look at that! Preparing your tax return lays out details to consider in your living trust.

BE THE ROAR not the echo ®

Warmly,

Janet Behm, The Tax Wizard