Recent studies show that 60 to 70 percent of people have not done any estate planning. This includes older people, younger people, people with and without children, and people of all races and backgrounds. In fact, pre-Covid, the number of people with estate plans has dropped from 2019 to 2020.
So why do people fail to plan? A lot of it has to do with some common estate planning myths.
Myth: It will just work out
There is a system for distributing an estate if a person dies intestate (without a will). There is a statutory scheme to track down your heirs when you die and a series of formulae for how to distribute your assets. Unfortunately, the system is not perfect, by any sense of the word. Your estate may go into probate, a long process wherein your assets may not be distributed for many months or more than a year. This may be tragic if you leave behind a child without a parent, and the funds to help raise them are tied up in court for eighteen months or more.
On that note, if you have a child, the person you want to raise them in case of your death may not be the one selected by the court. And even if they do, you will not have left any instructions as to how you want your child raised.
Also, remember that your estate plan is not just about money. It includes taking care of you toward the end of your life. A health care directive is vital to making sure that your wishes are followed if you should become incapacitated. You may remember the national nightmare that occurred when someone did not have a plan.
Things will “work out,” certainly, but it may end up being very different than you think will happen if you do not plan ahead.
Myth: It isn't needed anytime soon
35.7 percent of people without estate plans claim to just have not gotten around to it. This statistic, of course, is a pre-Covid 19. Early studies have shown that there has been a surge in estate planning during the coronavirus crisis. The pandemic is a reminder of our mortality, and as unfortunate as the situation is, a silver lining may be that people start to plan ahead with their estate.
A shocking statistic from the 2020 estate planning survey is that in 2020 less than 20 percent of people aged 18-34 have an estate plan, and only around 25 percent of people from ages 35-54 have one. On the one hand, it might be expected that older people are more likely to have an estate plan – they have more assets and are closer to end of a natural lifespan. On the other hand, the average age that a person has a child was 26.9 in 2018. If you have a child, you absolutely need to get over the estate planning myth to manage not only their financial care, but to identify who will take care of them if something happens to the parent.
One other age group that needs to have some aspects of an estate plan set up is adults leaving home for the first time. They need a health care directive, durable power of attorney, health care power of attorney, and possibly a will. For a longer discussion about leaving home for the first time, see this blog post.
Myth: I don't have assets so don't need to plan
30.4 percent of people without estate plans claim this is the reason for failing to plan. But remember, estate planning is a holistic endeavor. Even if you don't have many assets, you can end up in the hospital or become incapacitated. Everyone – EVERYONE – should have a Health Care Directive and a Durable Power of Attorney. Just in case. Beyond that, drafting letters to family and friends and identifying specific gifts can be a huge boon for the people that are left behind. Estate planning is not just about big estates and assets, it's about your legacy.
Myth: Planning will upset family harmony
Family dynamics tend to shift once a person dies, especially a parent or person who is the social glue of the family. It is emotional to lose a loved one, and people don't always think clearly. One of the most dangerous things in litigation – the thing that drags out litigation and makes things go all the way to trial – is emotion. The ugliest fights in law tend to be Smith v. Smith, or Johnson v. Johnson – families that turn on each other when emotions get involved. Even a simple challenge to the distribution of assets of an estate can be very costly to the estate and time consuming for everyone involved.
Granted, not every intestate (dying without a will) person will lead to litigation, but it can lead to emotional attachment and internal fights. A little estate planning – giving people direction on what you want (rather than what they think you want) can avoid those conflicts and maintain family harmony.
Myth: It is too costly to be worth it
Estate planning is going to cost money, there's no way to get around that. It may even drive one to try a do-it-yourself will from an online resource. This, however, can be dangerous for several reasons. First, there is no guarantee of the quality of these templates. They may not be updated with Minnesota law and not even be enforceable in spite of one's best wishes. Something being handwritten on the will may invalidate it. An error in the execution and signatures of the will may invalidate the will. And, despite one's best intentions, things can go dramatically wrong.
There are numerous estate planning myths that keep people from planning. It is unfortunate that so few people have taken the time to create an estate plan. And the number of people with an estate plan seems to be dropping. While this may change somewhat with the Covid-19 pandemic, it is time to set aside some common estate planning myths and get planning. If you want to discuss putting together your first estate plan, or update an existing one, contact Signature Law to find out what options will work best for you.