Will… Estate Plan… What’s the Difference?

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Scenario 1: You don’t have a will yet. You know you need one. You’ll definitely get it figured out before you go on that trip in a few months. Unless the airline has a really good safety record. Then maybe it can wait?

Scenario 2: You have a will. You are on top of this like the will is Mount Everest and you are Tenzing Norgay. (Google it.) You wrote it up and even had it notarized. Could you be any more of a responsible grown-up?

In which of these scenarios are your loved ones guaranteed protection from a messy, lengthy, expensive court battle in the event of your passing?

Answer: Neither. (Sorry. Trick question.)

Proper estate planning is about much more than listing your beneficiaries in a will. Even if you follow the rules and have your will witnessed by two adults and notarized, that’s still not enough.

That’s the bad news. The good news: Proper estate planning isn’t difficult. It simply requires the input of an experienced professional who knows how to advise you and exactly what kind of legalese will protect you, your wishes, your assets, and your loved ones.

               “What do you mean by ‘estate plan,’ and how is that different from a will?”

A will is a document outlining your wishes. An estate plan is a strategic and thoughtful process that typically incorporates a will plus a power of attorney (appointing an agent to sign documents on your behalf if you’re incapacitated or incompetent), and a health care directive. In some cases, it may also include a trust.

Plus—and this is critical—a proper estate plan ensures that your assets are appropriately titled and given clear direction on beneficiaries.

Examples of assets that need to be titled and designated include: life insurance, 401Ks, savings and checking accounts, stock holdings, real estate, and other investment accounts. If you pass away with more than $75,000 in total assets that do not designate beneficiaries or own real estate only in your  name, your estate will require a probate proceeding.

“But my will says that I want my nephew/daughter/dog walker to receive my 401K balance!”

Sorry. If the 401K itself is titled and designated with a beneficiary, it won’t even go through your will. Your will might as well designate your 401K to Barney the Dinosaur. And if it’s not titled and designated with a beneficiary—and the balance exceeds $75,000—your estate will end up in probate court.

“What’s wrong with going to probate court? And, um, what is a probate?”

When a person passes, he or she has two kinds of assets: probate assets and non-probate assets. Non-probate assets are either held jointly (like a joint checking account) or have an officially designated beneficiary. Those will automatically pass to the proper beneficiary or joint owner.

Probate assets are anything else that doesn’t have an officially designated beneficiary. If you have more than $75,000 in total probate assets or any real estate, your estate must go through probate court.

There are two kinds of probate: informal and formal. Informal probate commonly occurs when an estate is relatively straightforward (no minor children involved) and uncontested (no one fighting over your stuff). It’s still a hassle, and it still costs thousands of dollars.

Formal probate is a whole different animal. It involves a judge and can drag on for months, or years. And—you guessed it—it’s even more expensive than informal probate.

Either way, probate isn’t always pleasant. The court needs to appoint a personal representative (commonly known as an executor) and notice about the appointment must appear in a newspaper for two consecutive weeks. Plus, since there’s a court proceeding involved, it’s a matter of public record. That means that anyone could swing by the courthouse and see what kind of assets you had.

“Remind me how I avoid probate court?”

Proper estate planning. There are a zillion loopholes, state-specific statutes, and semantic specificities involved. That’s why so many well-intentioned people write up their own will, only to find out that their life insurance payout is going to end up going to their loathed daughter-in-law because of a snafu with the verbiage.

As for your beloved cabin? An experienced attorney can set up a Transfer On Death Deed (TODD) ensuring that your property transfers to the appropriate person upon your death. A TODD could wrap up the real estate portion of your estate in a single day, as opposed to months in probate.

If you establish a thorough estate plan, you can skip all the drama and costs of probate. Estate planning is much less expensive than probate, and it also avoids lots of headaches and potential publicity and awkward conversations between your family members. At Johnson/Turner Legal, we know the ins and outs of relevant statutes and can complete your estate plan, start to finish. The right time is now. As the old saying goes, an ounce of preparation is worth a pound of not letting your aunts scream at each other in court.