Less than half of American adults have a will, according to recent surveys, although that number may be climbing due in part to concerns regarding the COVID-19 pandemic. Without a will, state law will govern who receives your assets and what assets they receive. Without an estate plan, if your assets exceed $75,000.00 at the time of your death, a probate proceeding is practically guaranteed.
What Is Your Estate?
Your estate is made up of all of the assets and liabilities you own or owe at the time of your death. This includes real property, bank accounts, investment and retirement accounts, mortgages, personal debts like credit cards, and business interests.
What Is Probate?
Probate is the legal process of gathering an estate’s assets, paying debts, and distributing the remaining property according to a will, or if there is no will, according to state law. The probate process is supervised by state court. The cost and length of a probate proceeding will vary based upon the complexity of the estate and whether there are any disputes, however at its fastest, an average probate proceeding usually takes a minimum of nine months to a year. Probate proceedings are public, and many details of your assets and debts will be part of a public court file.
So what is a “non-probate” asset?
Assets of an estate fall into two categories – probate and non-probate. A non-probate asset is an asset you own which has a beneficiary designation, payable on death designation, or transfer on death designation. Assets which are owned in joint tenancy with rights of survivorship are also considered non-probate assets, because the surviving joint tenant will automatically receive .
A non-probate asset is transferred by operation of law and without reference to a will, other testamentary document, or legal proceeding. It is important to understand this, because any non-probate asset will be transferred according to the beneficiary designation in place at the time of the owner’s death, and not according to any contrary instructions in a will or trust agreement. We recommend reviewing your beneficiary designations regularly, and especially in tandem with reviewing or establishing your estate plan.
What Estate Planning Documents Should I Have?
Every estate plan should include a will and a health care directive. Some families also benefit from revocable trust planning, irrevocable trusts, and powers of attorney.
- A will is the cornerstone document of your estate plan. It includes instructions on paying your rightful debts, distributing your remaining assets, and appointing your personal representative, who will be responsible for administering your estate after your death.
- A health care directive, sometimes referred to as a “living will” or “advance directive”, appoints a health care agent or agent(s) to make certain health care decisions on your behalf if you become incapacitated. In Minnesota, a health care directive may also give health care agents the ability to make certain funeral and organ donation decisions.
- A power of attorney appoints an attorney-in-fact who is then authorized to act on your behalf with regard to specified legal and financial matters. A power of attorney may be “durable”, which means it remains effective even after you are incapacitated or incompetent. It may take effect immediately, or it may only take effect upon the occurrence of a particular event.
- A revocable trust, sometimes called a “living trust”, is a trust agreement which can be revoked or amended at any time during the lifetime of the person who creates it. Assets held in trust do not need to go through the probate process. A revocable trust can offer opportunities for after-death tax planning and can offer some flexibility based on how large your estate is at the time of your death.
- An irrevocable trust cannot be easily amended and cannot be revoked. An irrevocable trust is a separate taxable entity from its creator. Irrevocable trusts can provide many opportunities for tax planning because an asset owned by an irrevocable trust is not considered part of the donor’s estate.