I don’t expect people to know this stuff, that’s why they need to talk to a lawyer. But if you are doing your own research on Estate Planning, here are 3 common myths:
Some people turn themselves into knots regarding this myth. It’s been drilled into us that we can give 15k a year to however many people we want as a gift. No taxes! Yay! But what if you want to give more? Let’s say you give your child 115k. Who gets stuck with the tax bill? Great news! Neither you or your child will pay taxes on that 100k gift. Instead, it reduces your inheritance exemption amount by 100k. As of 2021, the inheritance exemption is 11.7 million per individual and 23.4 million for a couple. So if you gift your child 115k (which is 100k more than the 15k “limit”) you are now limited to only using 11.6 million.
All that needs to happen is to file a gift tax return, Form 709 from whomever gifted the money. The peron receiving the money doesn’t need to claim it. That Form 709 will not have any fees attached to it, rather it is how the IRS keeps track of your exemptions.
Remember that these figures can be changed whenever the government thinks it is appropriate, so just be aware that the limits can go up or down in the future.
This is a frustrating myth to combat. People assume you can just take the Will to the bank and get the money released. Or take the Will to a real estate agent to have a house sold. Nothing could be further from the truth. When a person dies, with or without a Will, all of their assets are probably frozen. The process of probate is how the title to your assets is changed. There are ways to avoid probate but just having a Will doesn’t cut it.
Husband and wife jointly own cars, a house, brokerage accounts and checking accounts. The myth here is that joint property acts the same way as a joint bank account. They don’t, unless they are titled with ‘Right of Survivorship’.
Unless there is the Right of Survivorship’ designation, your brokerage account will be probably be partially frozen upon your spouse’s death. You will not be able to sell a car or house if jointly owned. Again, you can avoid this hassle through Living Trusts and other tools. What’s important to know is that joint ownership doesn’t automatically turn into full ownership upon the death of the other person.
These three myths are rampant and if you know them now, you can avoid a lot of headaches down the road. And as always, a quick consult with an Estate Lawyer can clear these and many more myths right up for you!