By Joe Davio
Through my years in banking, I've found that many people have misconceptions about the best way to leave their hard-earned money to their families. Here are some of the common misunderstandings I've run across:
Estate taxes won't affect me -- I don't have $625,000.
When calculating the value of your estate, don't forget to include life insurance proceeds, retirement plans and IRAs.
I own everything jointly with my spouse, so I don't need an estate plan.
If your combined estate is more than $625,000, you will pay unnecessary estate taxes. By leaving everything to your spouse you are effectively passing up your unified deduction.
A will is all I need.
A will can appoint a guardian for your minor children, and can determine who will receive your assets after your death. Without a trust it cannot determine when your children will inherit your estate. Generally speaking, your children would receive their entire inheritance upon their eighteenth birthday.
It's no one's business who I leave money to.
Wills are public record. If you want privacy, avoid probate. Create a trust and title your assets to the trust.
Life insurance is not subject to taxes.
Although it is true that life insurance proceeds are not subject to income tax, they are included in your estate, where taxes can run up to 55%. One specific type of trust, an Irrevocable Life Insurance Trust, can take ownership of the policy out of your name, and out of your taxable estate.
My spouse will never remarry.
Still, you should consider the "what if" questions. What if you leave everything to your spouse, what if he or she remarries, what if he or she dies, leaving everything to the new spouse? What do your children inherit?
I don't need a corporate trustee.
A corporate trustee can administer all aspects of the trust -- accounting, legal and investment, in a professional, even-handed manner. Asking a family member to take sole responsibility for all of that assumes financial sophistication and a family that will never have any conflicts -- a rare combination.
I'm leaving money to charity in my will.
Did you know that you can leave money (or stock) to your favorite charity while you are alive and receive income from your donation? It can be done through a Charitable Remainder trust.
Having a trust avoids probate.
All assets that are titled in your name alone at the time of your death will go through probate. Title your assets in the name of the trust to avoid probate. For example, your checking, savings and brokerage accounts may be titled "John W. Smith Trust, John W. Smith Trustee".
I had a trust done ten years ago - it's still good.
Your trust can become outdated by changes to the tax law or by changes in your personal circumstances. Stock market gains over the last ten years may have increased the value of your estate to the point where more advanced estate tax planning is now in order.
Professional trustees, such as the people that I work with at Comerica, can be included as part of your team of advisors when thinking through what you want for your own estate plan. Of course, you'll want an attorney who specializes in estate planning to draw up the final documents.
Joe Davio is regional president of Comerica Bank in Grand Rapids. For more information, call (616) 456-9622.