Debunking Common Misconceptions About Wills
The majority of Americans do not have a will, and the number of US households with a will has
been in steady decline.
At the outset, it is important to dispel a recurring myth about estate planning: It is not just for the
wealthy - or older adults, married couples, or any other single category of individual. Estate
planning is beneficial for everyone. But this is just one of the many misconceptions people have
about wills and estate plans; there are also misunderstandings about how wills function and
what planning purposes they can be used for.
Myth #1: Wills can be used to avoid probate.
If you are like most Americans, you probably value your personal autonomy and want to
minimize state involvement in your personal affairs - both in life and in death.
When someone dies without a will (known as dying intestate), the courts and state law
determine who receives the deceased person's home, retirement savings, personal property,
and other assets. This is done through a process called probate.
Even if you pass away with a will, your estate must go through probate, although the process
will not be nearly as heavy-handed as it would be for somebody who dies intestate. Your will
lays out your wishes about what happens to your money and property instead of relying on your
state's law.
Probate is not necessarily bad in every jurisdiction. It costs money and can delay distributions to
your loved ones. Still, it also helps to ensure that your estate is administered accurately and
legally with the added oversight of the court.
That said, there are benefits to avoiding probate, and estate planning attorneys can recommend
tools for doing so, such as trusts and beneficiary designations on financial accounts.
Myth #2: You cannot use a will for tax planning.
The certainty of death and taxes, as famously noted by Benjamin Franklin, is not quite as
certain as the taxes you might owe at the time of your death.
Estate taxes, sometimes called death taxes, are applied to assets (your money and property)
that you leave to others when you pass on, but the threshold net worth value when these taxes
kick in is very high. In 2024, you will not owe federal estate and lifetime gift taxes until your
taxable estate is over $13.61 million, and that exemption amount doubles for married couples.
Separate from, and in addition to, the estate tax is the generation-skipping transfer (GST) tax,
which applies to asset transfers to recipients - typically grandchildren - who are two or more
generations younger than you. In 2024, the GST tax exemption is also $13.61 million, or $28.22
million per couple.
However, the federal estate, gift, and GST tax exemption amount is set to decrease sharply at
the start of 2026 and revert to pre-2017 levels that are around half of what they are now. This
anticipated decrease in the exemption amount might justify employing advanced estate planning
strategies now, ahead of the 2026 sunset.
Before the current era of super-high exemptions, trusts were frequently used in estate planning
to reduce or eliminate estate, gift, and GST taxes. These strategies are still generally available
today, but wills can also be used for tax planning purposes.
Trusts can be created by an individual during their lifetime, in a revocable living trust, or upon
their death, under the terms of their will. The latter - known as testamentary trusts - can be
structured in various ways that may be utilized for estate and GST tax planning, particularly by
married couples. Some examples of tax-planning will-based trust structures are as follows:
- A qualified terminable interest property (QTIP) trust is a type of trust established for
the benefit of the surviving spouse. Assets transferred into a QTIP trust qualify for the
unlimited marital deduction, mitigating estate taxes due upon the first spouse's death.
However, this may only defer estate taxes owed until the second spouse passes away.
- A decedent can leave their entire estate (or a large part) to their spouse. The surviving
spouse can then disclaim, or say "no, thank you" to some or all of their inheritance from
their spouse. This disclaimed portion goes into a bypass trust (which can go by many
different names, such as credit shelter trust or family trust), which can benefit the
surviving spouse (and can also benefit others, such as dependents) during their lifetime
but will not be included in the surviving spouse's estate at death. This trust may be
created to use the willmaker's lifetime exclusion amount at their death instead of the
unlimited marital deduction.
- A trust can be established at your death that skips over your living children and directly
benefits your grandchildren to avoid a double estate tax (once when passing to the next
generation and again when passing to the generation after them). But because the GST
tax exemption is separate from the lifetime estate and gift tax exemption, you can
engage in advanced will-based planning to reduce or potentially eliminate the GST tax,
allowing more money to flow to younger generations.
Including tax-saving trusts in the provisions of a will can be quite complicated in practice, but
will-based estate plans have a place in tax planning for every demographic.
Myth #3: Creating a will is cheaper than creating a trust.
Creating a basic will might be cheaper than creating a basic trust, but it is not an apples-toapples comparison.
It ultimately comes down to how complex your plan is. Trusts tend to be more complex than
wills and, therefore, are typically more expensive to prepare. However, trusts and wills can often
contain similar provisions that require a comparable amount of time to properly research and
draft properly.
In addition to upfront costs, administration costs need to be factored in. Wills are subject to
probate and can, therefore, be more expensive to administer. However, trusts may have
ongoing costs such as managing investments, filing taxes, and accounting that simple wills
likely do not have.
Rather than focusing on a set price, you should orient a plan around your specific
circumstances and needs. Estate planning is not an area where it pays to cut corners, whether
by using online planning tools or trying to make an overly simplistic plan when a more detailed
plan is required.
You also need to consider the costs of not having an estate plan - or having a plan that falls
short of your planning goals. To discuss those goals and how we can help you meet them,
please reach out and schedule a consultation.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional Counselors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
