Can you answer these 5 estate planning questions?

Allworth Co-CEO Scott Hanson shares a few basic - yet essential - estate planning questions that everyone should be able to answer. 

It’s a tough topic.

And I certainly understand why some people pass away without ever having done any estate planning.

But while I understand it, not putting at least a will in place thrusts family members into an incredibly awkward and stressful situation that can ruin lives.

When it comes to estate planning, a little education can go far. Here are five end-of-life estate planning questions that everyone should be familiar with.

1. What is probate?

Probate is the legal process through which a will is “proved” and accepted by the state as valid. The validity of a will is concerned with things such as it being the last true will and testament at the time of death, and that the estate and its assets are being distributed in accordance with law.

The amount of time it takes an estate to pass “through” probate, and the costs associated with it, can shock people. It varies by state, but, depending on where you live, probate can eat up a whopping 10% of an estate’s value and take years to complete.     

2. What is a will?

A will (also referred to as a “testament”) is a legal document that contains a person’s wishes regarding how they want their assets and property distributed at the time of their death. The will also identifies an executor, which is the person who will manage the process and oversee the completion of the distribution of the property and assets in accordance with the wishes of the deceased person.

While not foolproof, a well-conceived will takes the burden of deciding “who gets what” out of the hands of the heirs and beneficiaries. And, contrary to popular belief, while it makes the process much smoother, a will does not preclude your estate from passing through probate. 

3. What is a beneficiary?

When a person creates a will, it will include beneficiaries. In the most general sense, a beneficiary is a person or entity who is listed to receive money from the deceased benefactor.

Importantly, if an asset held by a financial institution (such as a retirement account), has a “named beneficiary," then that asset goes directly to the named person without having to pass through probate. Other assets that allow for named beneficiaries are life insurance, checking, savings, and brokerage accounts.

Because named beneficiaries supersede anything in your will, always make it a point to update them anytime you experience a big life event such as marriage, divorce, re-marriage, etc.

4. What is a revocable trust?

Usually concerned with assets such as houses or property, a revocable trust, or living trust, avoids probate by listing the beneficiaries who will receive the asset upon the death of the owner.

A revocable trust essentially replaces all or part of a will. It allows the property owner to pass the asset to the intended recipient rather than having it first pass through the court system. One of the key benefits of a revocable trust is that it can be altered or changed at any time.

5. What is power of attorney?

Also known as “letter of attorney,” power of attorney is written authorization for someone to act on behalf of another - legally or financially. This can include private affairs, business decisions, or, really, just about any decision or action.

The person granting permission for others to act on their behalf is called the grantor, principal, or the donor of the power. The person who is granted power of attorney is referred to as the “agent.”

One of the biggest reasons we recommend working with an estate planning attorney is because the transfer of assets is such an important part of the financial planning process. You’ve accumulated wealth and, while it’s difficult to consider your own mortality, most people want to protect and preserve their hard work for the benefit of their family and loved ones.

So, the big question is, who needs a will? Anyone who is married, has kids, or has assets.

It’s not an overstatement to say that having a well-conceived will can keep your family from experiencing the type of conflict that can destroy even the strongest bonds.