Everyday I'm faced with Louisiana residents' misconceptions about certain areas of estate planning. If I can use this post to help just a few folks eliminate these misconceptions, it will make my life and the lives of many others much better.
Misconception #1: If you have a Will, you avoid probate. Countless times over the years a spouse has passed away and the surviving spouse has sat with me at the conference room table. The surviving spouse typically says something like this, "I thought that since my spouse had a last will and testament, that the probate (or as we often call it in Louisiana, a "Succession") was avoided. I thought I could just produce the Last Will and Testament and everything would be put in my name."
Sorry folks. No can do. A Will names an executor whose job it is to guide and nurture the family and heirs through the court process, and the Will also tells a judge who to make sure the remaining assets get disbursed to after all of the delays and costs and procedures have been met. But a Will does not avoid probate.
The second biggest misconception that I face on a daily basis is that most people think that if they give more than $14,000 to their kid, then taxes are owed. Wrong again. Everytime I hear someone tell me that taxes are owed if they give more than $14k to someone , I give them this example, which they seem to understand.
I say, "Let's assume you give $114,000 to your kid. You gave $100,000 more than the allowable amount. But no one owes taxes. By making a gift of $114,000 to your kid, you just used up $100,000 of your estate tax exemption. So now, when you die, your estate can only leave $5.35 million free of estate tax, rather than $5.45 million."
To which they respond, "Oh. That's not an issue for me because I don't have an estate that exceeds $5 million."
What other estate planning misconceptions are out there?