What Is Estate Planning?

At its core, an estate plan is a set of legal documents. The documents present your wishes for:

• Distribution of property
• Guardianship of minor children
• Healthcare decisions
• Other matters related to your estate

The estate planning process can be complicated. But with the right legal advice regarding estate law, you can plan your next steps. FindLaw's goal is to empower you to make decisions with confidence.

This article provides a brief overview of estate planning. It includes the following:

• Basic terminology
• Components of a basic estate plan
• Where to find additional related content
• How to find an experienced estate planning attorney in your area

Estate Planning 101

To get you in the right mindset, here is an idea of the types of property that make up your estate:

• Real estate and real property (i.e., houses and land)
• Bank accounts that only have your name on them
• Brokerage and other taxable-investment accounts
• Annuities
• Stocks and other securities
• Life insurance policies
• Personal property and other movable property (for example, automobiles, jewelry, and artwork)
• Retirement assets
• Retirement accounts and other retirement plans

This listing is only a starting point for creating your list of assets. To get a complete picture of your estate, think about ownership of assets. It is essential to estate planning to understand the ownership status of your assets. Further, it's critical to determine if you have beneficiary designations for your financial accounts. When you do, these assets will transfer to the beneficiary without going through the probate process.

You must know what property you solely own and what property you own jointly with someone else. Estate planning must start with an accurate inventory. So, make a list and double-check it! You can explore specific estate planning tools after you get a good idea of your asset ownership.

What Are Estate Planning Documents?

Once assets are inventoried and ownership status is clear, the next step is deciding which estate planning documents to include in your plan. A good estate plan should provide peace of mind by offering clear answers to questions like:

• What is the state of your financial affairs?
• What real and personal property do you own?
• Who gets which assets, and how much?
• Does a personal guardian need to be appointed to care for minor children?
• Is tax planning required (i.e., federal estate tax, gift tax, or inheritance tax) for property transfers?
• What funeral arrangements would be best for you?

Many people fail to consider all the documents in a complete estate plan. Estate planning goes beyond just executing your last will and testament. It is prudent to cover all your bases. Try to plan for as many probable situations as possible.

Examples of Essential Estate Planning Legal Documents

The following documents are considered essential to any estate plan:

• Revocable living trust
• Power of attorney (POA)
• Advance health care directives
• Medical power of attorney
• Living will

Some other less common examples include documents such as a special needs trust, or a trust created by a grantor to benefit a family member or loved one with a mental or physical disability.

Who Gets My Stuff?

A vital step in the estate planning process is to make beneficiary designations. A beneficiary designation is a person, people, or organization you name. You designate them to the financial institution as beneficiaries. They will receive your assets or property when you die.

The beneficiary designation may become an issue when you want to pass on property in which you have a joint ownership interest.

Property may also pass to a beneficiary through the terms of a contract. Examples include:

• Joint bank accounts
• Life insurance policies
• IRAs and pensions
• Property owned as a joint tenant with the right of survivorship

If property passes under the terms of a contract, it passes to the named beneficiary regardless of what your will states. This avoids a court process in probate court. Assets passing to beneficiaries by a beneficiary designation do so outside the probate process.

Like other estate planning documents, you must keep your named beneficiary designations current.

Married couples should remember that your spouse may not always automatically take control of your assets at death. While you may be married, the terms of a will or contract control your assets.

What Is a Contingent Beneficiary?

The phrase "contingent beneficiary" can be defined by looking at each word individually. "Contingent" means to be dependent on another person or event. A "beneficiary" is a person who receives assets from:

• A will
• A life insurance policy
• A payable-upon-death account
• Any other situation that transfers ownership after the death of the estate owner

A contingent beneficiary may receive the gift from your estate. Certain conditions must be satisfied. For example, your will may say: "My son will receive my 1979 Corvette upon my death if he graduates college." Here, the gift is the car. But your son will only receive the car if he graduates from college. Thus, the vehicle only transfers upon completing the stated contingent condition.

When deciding how to complete your estate plan, weigh the pros and cons of putting conditions on the distributions.

Powers of Attorney

Powers of attorney are legal documents that give an appointed agent substantial power. The person you give authority to act on your behalf is the attorney-in-fact or agent. The agent has the authority to make significant life decisions for a person (the principal).

In most cases, the agent acts when the principal cannot make decisions for themselves. The type of power of attorney determines the limits of the agent's authority.

A durable power of attorney, also called a durable general power of attorney in some states, extends further than the principal's incapacity. These powers of attorney can be a general power of attorney allowing the agent to take legal action on your behalf. Or you could create a durable power of attorney for healthcare or any other discrete issue, such as a real estate sale.

A financial power of attorney appoints an agent for the limited purpose of making financial decisions for you. It would be best if you chose an agent that you trust. Consider selecting a person who knows you very well. You should also have a good relationship with this individual. Once you think of a person, discussing their role and communicating your wishes is good.

Planning for Estate Taxes

Estate taxes are the taxes paid to the federal government (and sometimes also payable to state governments) on inherited real and personal property. The Internal Revenue Service (IRS) assesses estate tax without respect to whether the person died with a will. To establish the estate's taxable value, you need to determine the estate's total value and subtract debts.

Usually, estate taxes do not apply to estates with a taxable value of less than $12.920 million for 2023. Fortunately, most loved ones will not have a large tax bill from the IRS.

Estate Planning: Additional Resources

You should plan for significant life events. Many do not think about what would happen if we could not make life decisions for ourselves. A comprehensive estate plan can resolve many legal questions that may come up as you grow older and your health situations change.

Estate planning is essential to ensuring final property and health care wishes are honored. You can provide for loved ones in your absence.

Get Legal Help With Your Estate Planning Needs

Having an estate plan is one of the most thoughtful things you can do for your loved ones. But ensuring you properly execute your estate plan can take time and effort.

An experienced estate planning attorney can explain all options. They can help you determine which options meet your goals. Whether you need to revise an existing will or create a comprehensive estate plan from scratch, it's best to contact an estate planning attorney. Get started on your estate plan today.

Related Resources:

• Paying the Debts of a Deceased Relative: Who Is Responsible?
• Advance Directives and Living Wills: State-Specific Forms
• Advantages of Various Estate Planning Tools