What Is Estate Planning?

Estate planning involves preparing for how your money and property will be managed and distributed after your death. Besides deciding who gets your property, estate planning can also include:

• arranging care for your young children
• making plans for your own care and for managing your property if you can’t handle things yourself
• helping your heirs avoid probate court after you die, and
• taking steps to reduce federal or state estate taxes if you own a lot of property

You can do many estate planning tasks yourself, but if you have a lot of property or a complicated family situation, it’s smart to get help from an experienced estate planning attorney.

Why Is Estate Planning Important?

Estate planning helps you protect your money and your family after your death or if you can’t manage things yourself. If you’ve ever had to handle a loved one’s estate without a plan, you know how important estate planning can be for your family.

Without an estate plan, a court could decide what happens to your assets, belongings, and even who cares for your children. Ultimately, the purpose of making a sound estate plan is to save time, money, and stress while ensuring your final wishes are honored.

Do You Really Need an Estate Plan?’

If you don’t have many assets, you probably just need a simple will, powers of attorney, and health care directives, as explained below. Still, it’s a good idea to look at your situation to see if more estate planning could help, such as avoiding probate, minimizing estate taxes, or deciding how your property is distributed after you die.

For those with moderate to large estates, it’s wise to look into ways to avoid probate. Even simple probate avoidance tools can save your heirs a lot of time and money. Tax planning matters only if your estate is very large. And if you want to set up special rules for how your property is used after you die, it’s best to talk to an estate planning lawyer.

Key Components of Estate Planning

These estate planning documents and tools are the basics of a good plan.

Wills

One of the main reasons to create an estate plan is to leave instructions about who receives your property after you die. The simplest way to do this is to make a will. If you don't have a will or another legal tool in place, state law decides how your belongings are distributed after your death.

Beyond deciding who inherits your assets, your will can also:

• name backup beneficiaries
• appoint an executor who will manage the distribution of your property
• name a guardian to care for your minor children if you are unable to, and
• appoint a responsible adult to manage any property left to a child or young adult.

Living Trusts

A living trust allows your property to avoid probate after you die. The assets you put in the trust go straight to your beneficiaries, saving time and money. But not everyone needs a living trust in their estate plan

If your estate is small or simple, avoiding probate might not be worth the work of setting up and managing a living trust. Also, things like retirement accounts and life insurance can go straight to your beneficiaries without a trust. Whether you need a living trust depends on your own situation and what you prefer.

Beneficiary Designations

Another way to make inheritance easier and avoid probate is to name beneficiaries directly on certain assets. You can do this with simple paperwork for things like:

• bank accounts with pay-on-death (POD) beneficiaries
• stocks, bonds, or vehicles with transfer-on-death (TOD) beneficiaries
• real estate held by a transfer-on-death deed, and
• retirement accounts and certain pension funds, by naming a beneficiary on forms supplied by the account provider.

Joint Ownership

Like naming beneficiaries, some types of joint ownership let property go straight to a co-owner without going through probate court. These include:

• property held as "community property with right of survivorship," which automatically transfers to the surviving co-owner when one person dies, and
• property owned in joint tenancy or tenancy by the entirety, which automatically passes to the surviving owners after your death.

Durable Power of Attorney for Finances

Another important part of estate planning is choosing people to help manage your affairs if you need help before you die. A durable financial power of attorney lets you name someone you trust to handle your money matters if needed. This person can pay bills, make deposits, manage insurance and benefits, take care of property repairs, and even handle investments or a business. In most cases, having a durable power of attorney for finances is the best way to make sure these tasks are handled well.

Almost everyone who owns property or earns money should think about making a durable power of attorney for finances. This is especially important if you worry that illness or health problems could keep you from handling your own finances.

Healthcare Directive (Living Will and Power of Attorney for Health Care)

It’s also important for your loved ones to know what medical care you want or don’t want if you can’t speak for yourself. Health care directives let you spell out your wishes and appoint someone you trust to make sure they are followed. This person can also make other key health care decisions if you’re too sick or injured to make them yourself.

Depending on your state, these documents may be called an advance health care directive, a living will, a durable power of attorney for health care, or a health care proxy.

Funeral Arrangements

As part of your estate plan, let your loved ones know your wishes for burial or cremation, the type of memorial you want, and any other details about your final arrangements, including prepaid plans. To make sure your wishes are followed, write them in a separate final arrangements document. Your will might not be found in time to help with these decisions.

Letter to Survivors

As you wrap up your estate plan, you may want to explain the reasons for some of your choices. For example, you might want to share why you left a large gift to charity, why you picked your niece instead of your brother to manage your child’s finances, or where you keep important documents and passwords.

A good way to share these messages is to write a letter for your inheritors to read after you die. You can type it or write it by hand; the format doesn’t matter. While it’s not legally binding, this kind of letter can give helpful guidance and comfort by sharing your wishes.

How to Create Your Estate Plan

The following steps are essential to the estate planning process.

1. Inventory Your Property

List everything you own, no matter how much it’s worth. Be sure to include:

• Your home and other real estate
• Cars, motorcycles, boats, RVs
• Bank accounts
• Retirement accounts
• Investment accounts
• Stocks, bonds, and certificates of deposit (CDs)
• Life insurance policies with cash value
• Business interests
• Valuable personal property (jewelry, art, antiques, collectibles)
• Valuable household items (furniture, electronics, appliances)
• Digital assets (cryptocurrency, online accounts)
• Intellectual property (patents, copyrights, trademarks)

2. Decide Who You Want Your Beneficiaries to Be

Think about who you want to inherit your property. After you pick your main choices, remember to choose backups in case your first choices don’t outlive you.

3. Choose People for Important Roles

When you plan your estate, you’ll pick trusted people to handle your affairs if you can’t or after you die. Key roles to consider include:

• financial agent or attorney-in-fact
• health care agent or proxy
• executor of your will
• trustee for any trusts you establish
• guardian and property manager for minor children
• pet caretaker

Once you've identified the roles and chosen the right people, talk to them to make sure they understand their responsibilities and are willing to take on the job.

4. Decide If You Want an Estate Planning Lawyer

If your estate and family situation are simple, you might not need an estate planning attorney. But it’s a good idea to talk to one if any of the following apply:

• You have a large or complex estate, especially if you may owe federal or state estate taxes.
• You own real estate in more than one state.
• You have a blended or complex family, such as children from different marriages.
• You want to set up special arrangements, such as a trust for a child with special needs or for minor children.
• You wish to disinherit someone or are concerned that someone will contest your will.
• You own a business and don’t have a succession plan.
• You have questions about Medicaid planning, long-term care, or protecting assets from creditors.
• You are unsure about the best way to distribute your assets or minimize taxes.

If you’re unsure about your situation or the legal documents, even a short meeting with an estate planning lawyer can help make sure your wishes are followed.

5. Gather Important Information

Collect all important documents and paperwork related to your estate, including:

• existing wills, trusts, beneficiary designations, or powers of attorney
• funeral, burial, or cremation instructions
• property deeds
• vehicle titles
• life insurance policies
• financial account statements
• recent tax returns
• marriage certificates and divorce decrees
• birth and adoption certificates
• military discharge papers
• business or partnership agreements

Also, write down any usernames or passwords needed to get into these accounts or documents. Keep all your estate planning materials together in a safe place.

5. Make Your Documents

You can use good self-help materials to make many estate planning documents, like wills, living trusts, and powers of attorney. But as mentioned above, there are many times when you may want an experienced estate planning lawyer to help you make a plan that fits your needs.

6. Keep Your Estate Plan Up to Date

Check your estate planning documents and beneficiaries every three to five years or after big life events such as:

• birth or a child or grandchild
• marriage or divorce
• death of a spouse, child, executor, agent, or beneficiary
• moving to a new state
• significant financial changes, or
• new decisions about beneficiaries or who you want to name to one of the fiduciary roles discussed above.

Regular reviews help make sure your estate plan still matches your wishes and works as well as possible.

More Information About Estate Planning

Thoughtful estate planning ensures that your wishes are honored and your loved ones are cared for when you’re no longer able to make decisions. By making the right documents and keeping them up to date, you provide peace of mind for yourself and those you care about.

The articles below can help you learn more about estate planning:

• What Is a Will?
• Write a Will Without a Lawyer
• How to Make a Power of Attorney
• What Powers Can a Financial Power of Attorney Include?

You can find out more about making WillMaker’s will and living trust in WillMaker’s Legal Manual.