Estate Planning Basics, part 1: Decisions about documents

According to a recent survey, less than one-third of adults have a will or other estate planning documents in place. While many people put this conversation off, the numbers don’t improve that much with age. Less than half of people over age 55 still don’t have a plan put together.

A complete estate plan should include:

  1. A will or trust;
  2. Financial power of attorney;
  3. Health care power of attorney;
  4. Living will or advance directive; and
  5. Long-term care insurance.

However, if you don’t take the time to define how you want things handled, your “plan” will be the default rules established by the state you live in, and your loved ones will inherit the headaches of the public court system disbursing your assets on its own timeline.

Instead, the following information can help you leave your loved ones with a little peace of mind regardless of the size of your estate. And you can enjoy having a say over who gets what when the time comes.

Will or trust?

One of the most common things I hear from clients is that they aren’t wealthy enough for a trust. While it’s true that a trust provides additional support for larger estates, there is no minimum qualification to establish a trust. Many of the trusts we administer at State Bank of Cross Plains include a standard family home, some basic retirement assets, and/or a pension.

Yet, there are often other good reasons to choose a trust over a will. The decision tends to be less about the size of your estate and more about the philosophical approach to how your estate is handled.

Both wills and trusts accomplish the same end goal of defining how the assets are distributed. However, there are a few specific differences:

  • When the documents take effect. Probably the biggest difference is that a will becomes active upon your death. On the contrary, a trust takes effect whenever it is activated, meaning it can be useful if you ever become unable or unwilling to handle your finances during your lifetime.
  • Privacy. A will gets filed with the court in a process called probate. During probate, every asset is listed, including value and who ultimately receives or inherits that asset. Anyone can look up that information through public access. Sometimes that happens out of innocent curiosity. Sometimes it happens when people wish to target someone with money. Privacy offers your heirs some level of protection. Since a trust is a private document, it does not get filed with the court system and avoids probate.
  • Timeline for disbursement. A will is subject to the court schedule and could take significantly longer to distribute. The process is easier in some counties than others. A trust can be handled by the trustee and disbursed almost immediately.
  • Cost. This falls under the adage of “pay now or pay later.” A will is usually very inexpensive to create, but the court process often incurs some legal fees. On the flip side, a trust should be created by an estate lawyer, which requires some cost up front. You can name a relative or friend to manage your trust at their own expense of time and talent, or you can name professional trustees to manage everything for your loved ones for a small fee that comes out of the estate. Overall, the trust tends to be slightly more expensive, but often significantly less frustrating.
  • Mediation. With either a will or trust, everyone involved must sign off on the final disbursement. If your heirs don’t agree — even if you have specifically directed certain assets — someone has to make the final decision, such as a judge in court, an executer of the will, or a trust officer. Emotions can sometimes run high while in court and things need to be finalized in the moment. A trust provides more leeway for giving people time to absorb your intentions and enables disputes to be handled in a more collaborative, conversational, and private manner. From my perspective as a trust officer, we often do a lot of listening to figure out what the underlying issue is in order to find a solution that actually addresses the real frustration.

Bequeath your heirs a little peace of mind

Remember that the real gift you leave behind should be peace of mind. Don’t leave your loved ones wondering about your intentions.

In part 2 of Estate Planning Basics, I will share tips for choosing a trustee or power of attorney for the estate planning documents you create. Understanding the responsibilities involved can guide your choice and avoid overwhelming your loved ones during a time of grief.

Attorney Alyssa Chance is a vice president-trust officer at State Bank of Cross Plains (SBCP). She brings experience from private practice working in family law and estate planning to her role in SBCP’s Wealth Management Division.

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