Estate Planning 101

Wills versus trusts
By Jen Jacobson

An estate—the word may conjure images of a grand house on immaculate grounds. However, the legal definition is quite different. Rather, it’s your entire net worth, including all properties, investments and belongings.  

Have you documented what will happen to your estate when you’re no longer living? If not, you’re in good company. An estimated 55% of American adults don’t have an estate plan in place. 

“I often hear from people that they don’t have any assets, but that’s rarely the case,” says Melissa Saunders, an estate planning attorney at Dunlap & Seeger in Rochester. Whether it’s a home, retirement funds or that heirloom ring that’s been passed down for generations, the odds are you have some type of assets and you may want input on who they’re given to when you’re gone. Here’s a look at the options.

BENEFITS AND LIMITATIONS

There are two primary options when it comes to executing an estate plan—a will and a revocable living trust. While both methods serve primarily to name beneficiaries for your property, each has its own set of benefits and limitations.

A will directs who will receive your property at your death and also elects a representative to carry out your wishes. It also allows you to name a guardian for your children and to specify funeral arrangements.

However, the downside is that a will has to go through probate court upon your death. While your will can be used to nominate a personal representative, in the probate process, the court officially appoints a representative. This process may involve a hearing, which takes both time and money. This process is also a matter of public record.

A trust, on the other hand, allows you to avoid the probate process. “It’s very seamless with a trust,” says Saunders. “You can write the check to the funeral home right away, where it may take four to six weeks for your representative to gain access to your assets in a probate.” Another benefit of a trust is that it goes into effect immediately rather than at death. This offers clear advantages when planning for any future disability, as a designated friend or loved one can act on your behalf to manage assets when you’re no longer able.

Trusts, however, don’t allow you to designate guardians for children. They also take conscious effort to maintain. “A living trust is useless unless it’s funded,” says Saunders. “It can only be used to control assets that you place into the trust, which can be a tedious process. It’s also more expensive to set up.”

CHOOSING YOUR PATH

Which type of estate planning is best for you? It may depend on your stage of life, explains Saunders. “A will is typically done for younger clients,” she says. “They’re more affordable, and since it’s easy for things to slip through the cracks as you obtain new assets, you don’t have to keep it funded like you do a trust. Or if you just want to designate guardians, a will is very appropriate.”

Saunders often recommends establishing a trust closer to retirement, when your assets are more stabilized. However, both estate planning options can be revised as your life situation or assets change.

GETTING STARTED

It’s important to get expert guidance when setting up these important legal documents. “While online forms are available, they’re fairly generic for the U.S. and don’t always comply with Minnesota law,” says Saunders. “In addition, people don’t often think of all the contingencies, such as what to do if a beneficiary or representative dies before you do. We can help you think steps down the road with scenarios that may happen.”

Estate planning does take preparation. Many firms will provide questionnaires or worksheets ahead of an appointment to get you thinking and talking about any needed information. You’ll need to provide an accurate inventory of your assets and any existing legal documents linked to your finances, including any past estate documents or divorce decrees. It’s also important to think about who would make a good personal representative for your estate. “Even if you have questions or haven’t made a final decision, it’s still good to have thought about it beforehand,” says Saunders. 

 Jen Jacobson is a local writer and editor.