Estate Planning 101

What is “estate planning”?

Estate planning basically means planning for your death or incapacity.

Your estate is all of your assets at the time of your death.

A probate is a court proceeding, the method used to transfer assets to your heirs. A probate is not required if your individually-owned assets are less than $50,000 (current limit), and not including real estate. There may, however, be other reasons to have a probate. Anything with a beneficiary designation or joint ownership passes independently.

What does a typical “estate plan” include?

For most people, the core of an estate plan is a will, health care directive, and power of attorney, and for some people this may include a trust.

Will. A document that directs how you want your assets to be distributed when you die. You can also use it to nominate guardians for your children, or to set aside money into a trust if your children are young (this is called a testamentary trust).

Trust. The end goal of a trust is very similar to a will, but the main difference is that assets are owned by (or for) the trust rather than transferred after death. In that way it’s used immediately rather than put off until later. There are a variety of reasons to do a trust. The most common reasons are property owned out of state, complicated family matters, or estate tax planning.

Health Care Directive. a.k.a. Health Care Power of Attorney, Living Will, Health Care Proxy. This document names someone to speak on your behalf regarding health care decisions if you cannot speak or decide for yourself. It’s estimated that 50% of people will need someone to make health care decisions for them at some point during their lives. Typically we think of the end of life, living in a coma, “pull the plug” (or not) decisions, but it also applies in more temporary situations such as a surgery.

Power of Attorney. a.k.a. Financial Power of Attorney. This document names someone who can act on  your behalf regarding financial matters, typically a spouse. This helps avoid a guardianship proceeding if you are temporarily incapacitated.

But an estate plan is much more than a set of documents. Another important component is reviewing your assets because there are many ways to ease the transfer aside from through a will or trust will, such as updating beneficiary designations, taking advantage of joint ownership, or adding a beneficiary deed (Transfer on Death Deed) to real estate. (For example, keeping your assets that do not fall into these categories under $75,000 can be a very simple and easy way to avoid a probate). Understanding the process by which property transfers upon your death, and planning ahead for these transfers, can save money and headaches.

This information is for educational purposes only. It is based on Minnesota law and may not be true in other states. See the website Terms of Use.