Estate Planning Myths

Speaker: Maritess Bott

Maritess:

Hello everyone, my name is Maritess Bott of Bott & Associates. I’m here to talk about what is called the five common estate planning myths and how to avoid them. It’s just five things we want to hit—some issues that I think people generally have an opinion about, and maybe what we’re about to share might change your opinion or change it around a little bit. We’re going to go ahead and get started.

Number one reason people don’t do estate planning is procrastination. Everybody thinks they’re not going to die anytime soon. We want to make sure that we protect your family and leave your legacy, so don’t procrastinate.

Number two reason people don’t do any kind of estate planning is because they’re confused. It’s a lot of information. You think a simple will is going to be enough, and almost always it’s not. Hopefully this little presentation or this particular podcast will help you understand this.

For those who do watch or listen to this—and rather than watch it, I am showing some slides—hopefully you’ll get a little bit of flavor on what this is all about, but you could always go on YouTube to find out, look at the slides as well.

Understanding the myths of estate planning.

Number one: If I have a will when I die, things will work out just fine. Often people think a will is just fine, but they don’t realize that in Illinois, if there’s a will, there’s typically a probate situation. What does that mean? Well, now we’re going to go to court, we’re going to see a judge. It’s the process of changing title. Essentially, that’s what death probate is all about.

We want to change title. We want to eventually get it from whoever the decedent goes to—whoever the next person. In the situation I have on the screen, it’s Bill Jones who died and then his wife Mary Jones is going to receive everything. However, if there’s any assets outside and in his name that’s at least $100,000 or more, we go through this death probate.

Probate is a place to resolve disputes because people will fight over anything. We all know that. It’s a way to pay creditors, certainly inventory the assets, but then eventually we’ll distribute the estate.

As anyone knows, court is always a nuisance, a hassle. Why? Because number one, it’s expensive. It can start anywhere from $10,000 to $15,000. It can go upwards from there. It’s time consuming. About a year, year and a half is not unusual. That’s a common time frame for all of the probates that go in our office, but sometimes that’s even longer. I’ve had some go for five, six, ten years—even crazy.

It’s also public record. What it means is we’re going to put an ad in the newspaper basically saying that the person died and if you have a claim, come out and file a claim. More importantly is the petition—the very document that starts the whole probate—already has some very important information that you don’t want to be public record. It’s the names of the people who are receiving from the decedent, how much they’re receiving of inheritance money, and where they live.

If you don’t think that’s a recipe for scamming or taking advantage of a person because somebody knows you’re getting this kind of money, very important to realize we don’t want that to be public record. We try so hard to keep things private, and when we’re alive, we have to make sure that we keep everything as private as possible upon death.

The fourth disadvantage is that it’s multiple probates. If you do have real estate outside of Illinois, you’re going to open probate here in Illinois and maybe Florida or Michigan or wherever your second property is.

You do need an estate plan because you want your hard-earned assets to go to the people you want, when you want them to get it, handled by a person you’ve chosen. Then we want to avoid extra costs—probate, whether it’s a living probate, death probate, or death taxes.

Myth number two: My estate really isn’t big enough to worry about probate and estate taxes.

I mentioned earlier that if you have at least $100,000 or more in your estate, we’re going to go through probate. So don’t be so sure that your estate’s too small. If you have real property or personal property over $100,000, Illinois will require you to go through that court process we just described.

Can it be quite expensive? Of course. About 5% of the estate is not unusual. People will fight over things and it could go even more because of the fighting. It just depends. There are things that we want to avoid, and certainly the cost of probate is one of them.

Estate taxes—Uncle Sam has their hand up when you die, because if you have a certain size of an estate, they’re going to get a certain tax on that. The federal estate tax, the highest level is 40%. Can you imagine? You work so hard to have assets. Upon death, 40% still goes to Uncle Sam, which is horrible. But you do have an exemption. That means we have to have a certain level of wealth in order to be taxed.

Here in 2024, it’s $13 million as the exemption. Pretty high. Most people are okay, but it is scheduled to drop in 2026 to $5 million. In Illinois, this exemption is different than the federal one. It’s only $4 million. So anything above it, you are going to be taxed.

That’s something to discuss when you do come and meet with us, because most people don’t want to be giving to Uncle Sam or the state of Illinois.

Myth number three: I should name my children as contingent beneficiaries on my life insurance policies.

There could be some major complications when you put life insurance payable to children.

What can be those complications? First of all, if there’s a child involved under 18, then we have to open what is called a minor’s estate just so that we can get the money out of the decedent estate, put it into a minor’s estate for the child, and then at 18, he or she has full access to this money.

If you don’t see any red flags to that, then that’s a pretty scary prospect—to have a young child get too much money too soon.

We also have children and adults that might be irresponsible. Perhaps they’re disabled. These are the types of things we have to plan around and plan for.

Because if the default is we’re just going to give it to these beneficiaries, you might kick them off of Medicaid. Maybe they’re already on disability and Medicaid, SSI, and now you’re going to kick them off. That’s probably not what you were intending to do.

Perhaps you’re giving it to a child that has some drug or alcohol abuse. Most people don’t want to have that money that you worked hard for go right into drug addiction, alcohol addiction, and things like that. We already mentioned young children is something we have to plan around.

Myth number four: A power of attorney will take care of all our problems if I become disabled.

It seems like in Illinois law, there’s always lots of different things that change. The power of attorney is a great tool; however, there are some recent changes that you never know can affect you. A lot of banks and companies don’t even honor it because they want it with their own power of attorney. They have their own form rather than the one that’s a general power of attorney.

That could be a situation. If they’re not honored, guess what? We’re going to another court process called guardianship.

We want to avoid litigation or family disagreements. But if the power of attorney is not honored, then we have no choice but to go through this.

My suggestion, my advice for clients, is to create powers of attorney but keep them fresh as often as possible. I would say five to seven years. Beyond that, now they’re getting stale. We just want to have the best possible chance that a financial institution will honor it or a medical institution will honor it.

A guardianship, if we had to go through it, is something you don’t want to have. It’s another court proceeding. It’s certainly a way to protect people who are mentally disabled, but it’s also something that can be challenging to deal with. They’re expensive to deal with. It’s even more expensive than death probate. It’s time consuming. Often the people who are going to act as the agent or the fiduciary for the person will have to go to court and talk to the judge. There’s going to be some expense and time involved.

Last myth here is that joint tenancy is the best way to hold title to my property.

Joint tenancy is what we call an incomplete tool. It sounds good: me and my son are on my house. If I die, my son gets the house. No issues of probate, no issues of who it really goes to. It’s pretty straightforward.

We say it’s incomplete because you will have problems. If my son is on my house and he’s on title, if he has any liabilities against him—maybe a lawsuit because of a car accident—then my house is now in jeopardy because his name is on my house.

I would highly recommend not putting any of your kids’ names on your properties unless you truly went together and put your money together to buy maybe a rental property. That’s different than taking your own house that you paid for and putting your child on there.

There must be a better alternative. What are some options? We can certainly go out and do things on your own. So many do-it-yourself options. In fact, there’s a lot of companies that are out there that are not necessarily law firms that are also offering, here’s a will, here’s a trust.

This is just to say that certainly we can do a lot of things on our own. There are a lot of DIY options. Especially with the internet and social media, everyone seems to be an expert in doing TikTok videos. But this is so important for you and your family. This topic—it’s the money that you worked hard for, it’s the money you sacrificed for, the money you forgo vacations for, and you’re going to do a DIY document that’s going to tell us where it’s going to go. Do you think there’s a chance that it may go wrong? Yeah, it’s possible.

Why do people fail to plan? I already said it at the top of this: people just procrastinate this topic. “I’ll think about it later. Let me go on my vacations and I’ll think about that.” Hopefully confusion—we’ve cleared up a little bit of the confusion, but certainly this topic is a huge hour-long discussion, maybe longer than that.

This gave you a little flavor of what estate planning is all about, what the myths are, and we hope that this gives you enough teaser information for you to call us, schedule an appointment. We’re here to help you understand this topic a little bit more, especially as it relates to your family.

I am passionate about leaving a legacy for you, your family, your next generation. I want to be kind of your guiding light to help you with that.

Once again, I am Maritess Bott From Bott Associates. We’re hoping to be able to meet you one of these days or come to a seminar, and we’ll be happy to include you as one of the attendees. Hope you haave a great day and we’ll talk soon. [Music]