Myths and Misconceptions

There are some common misconceptions which interfere with sound business and personal planning. These myths and misconceptions persist because many of them contain a grain of truth. Some of the most common ones we have encountered over the years are as follows:

	Myth #1:	“If you pay a creditor a dollar a month of what is owed to them, they cannot sue you.”

	Fact #1:	This is not true under Idaho law. If the debt is fully due, and the debtor and creditor have not agreed upon a different payment arrangement, the debt is fully due and payable. The creditor can sue to collect the debt or take other lawful collection measures.

	Myth #2:	“If I get a Judgment against someone, the courts will follow up to ensure that the person who owes me the money pays me.”

	Fact #2:	This is almost never true. The court’s entry of Judgment in your favor is merely a determination that the debt is truly due and owing. The civil courts do not have the resources to follow up and enforce the collection of the debt. The person obtaining the judgment, or their attorney must take the appropriate legal steps to collect the judgment.

	Myth #3:	“If a spouse dies, the surviving spouse automatically inherits everything.”

	Fact #3:	It is unwise to assume that anything “automatically” occurs to place control of assets with the surviving spouse. Depending upon the type of assets, how they are held, their value, whether the deceased spouse had a Will or Trust, whether they had children by a former marriage, and many other factors, the surviving spouse may or may not inherit all of the deceased spouse’s assets. If you want to know that your spouse, your children, or any other person or entity will inherit from you, it is important that you have a valid, legally binding, written estate plan. Attorneys who regularly practice in the wills, trusts, and estate planning subject areas should be consulted to prepare a plan which will work for you, and not cause problems for those you leave behind.

	Myth #4:	“If you have a Living Trust, it will not be necessary to probate your estate.”

	Fact #4:	The Living Trust must be legal and valid, and assets must be transferred to the living trust for it to avoid probate. A Living Trust is not a “stand alone” document. An attorney with experience and expertise in preparing Living Trust based estate plans can help you establish and fund a Living Trust which will avoid probate.

	Myth #5:	“A Last Will and Testament, properly prepared, signed, and witnessed, will avoid probate.”

	Fact #5:	A properly prepared, signed and witnessed Last Will and Testament is a plan for an orderly probate of an estate. It is not a probate-avoiding estate plan.

	Myth #6:	“A Durable Power of Attorney will avoid probate.”

	Fact #6:	The use of the word “durable” in a power of attorney commonly refers to the power of attorney document being "durable" enough to continue even if the person who signed it later becomes incapacitated. It does not mean that it is “durable” to survive in effectiveness despite the death of the person who signed it. Accordingly, it is not a probate-avoiding document.

	Myth #7:	“Deeds to Real Estate do not need recorded.”

	Fact #7:	Unrecorded Deeds may be effective in some limited circumstances. However, the failure to record a Deed can result in the loss of the property if a bankruptcy is involved, if someone obtains a judgment against the prior owner, or if another person receives and records their Deed before your Deed is recorded. You should never assume that your rights in property will be protected if your Deed is not recorded.

	Myth #8:	“Community Property Agreements do not need to be recorded.”

	Fact #8:	In Idaho, a Community Property Agreement, also sometimes called a Devolution on Death Agreement, must be recorded prior to the death of either of the spouses. It must be recorded in the county where the couple resides, and in every county in which they own real estate. It must include the legal description of all real property which is affected by the Agreement. Note: The law in this area differs from state to state. If you live in a community property state other than Idaho, your state may have very different legal requirements for such agreements.

	Myth #9:	“If I sell something, and the purchaser signs a promissory note, showing what I sold them, how much they are to pay me, and when, my rights to be paid will be protected even if they file bankruptcy. Also, I will be entitled to repossess what I sold to them if they default on the loan.”

	Fact #9:	Receiving such a promissory note is not a way of assuring that you have a lien on what you sold, nor is it a way to protect your rights if the person later files bankruptcy, nor is it a way to assure that you will have any right to repossess the item if the buyer stops making payments. If you intend to have a lien on what you are selling, intend to have that lien hold up even if there is a bankruptcy, and to intend to have the right to do a repossession, your transaction needs to be structured so that you obtain and perfect a security interest in what you are selling. A qualified attorney should be consulted in advance of the sale, to prepare the documents which will properly protect your rights.

	Myth #10:	“Holding assets in joint tenancy with rights of survival (JTWROS) is always the best way to be sure that assets transfer upon death to the intended beneficiary with the least difficulty.”

	Fact #10:	Sometimes this is true, but often it is not. An attorney with expertise in estate planning, wills, trusts, and probate, can help you determine if this is true in your situation. In Idaho, there are circumstances which may cause the asset held in this form to be included in the probate, whether or not that result was intended. Also, if the asset has appreciated significantly in value since you acquired it, holding the asset in this form may cause unintended capital gains tax consequences when the recipient later sells the asset. While holding assets as joint tenants with rights of survival may be appropriate for your circumstances, it may, on the other hand, be a serious mistake.

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