What Is Estate Planning?
An estate plan is a set of legal documents that present your wishes for the distribution of property, guardianship of minor children, and even healthcare decisions. The estate planning process can be complicated, but FindLaw's goal is to empower you to make decisions with confidence.
Below you will find a brief overview of estate planning, including definitions of basic terminology, where to go to do additional research, and how to find an experienced estate planning attorney in your area.
Estate Planning 101
So, first things first: What is an estate? An estate is comprised of the various items of property and assets you own when you die. A good estate plan should account for everything you own. 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
- 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 financial assets
The above list is just a jumping-off point in the creation of your list of assets. To get a complete idea of what your estate includes, think about ownership of assets. It is an essential component of estate planning to understand what you own solely and what property you own jointly with someone else. Estate planning must start with an inventory with accurate content, so make a list and double-check it!
What Are Estate Planning Documents?
After you get a good idea of your asset ownership, the next step for adequate estate planning is deciding which estate planning documents you want to include in your plan.
A good estate plan should provide you with 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 what assets and how much?
- Does a personal guardian need to be appointed to care for minor children?
- How much tax will need to be paid to transfer property ownership?
- What funeral arrangements are appropriate?
Many people don't think about all the documents that go into a completed estate plan. Estate planning goes beyond just executing your last will and testament. It is prudent to cover all your bases and try to plan for as many situations as possible.
Examples of Essential Estate Planning Legal Documents
The following documents are generally considered to be essential to any estate plan:
- Last will and testament
- Durable power of attorney
- Financial power of attorney
- Medical power of attorney
- Revocable living trust
- Advance healthcare directive
Some other less common examples include documents like a special needs trust, a trust agreement created for the benefit of a person 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 have named as receiving 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, 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. Just like with other estate planning documents, you need to keep your named beneficiary designations current.
Married couples should remember that your spouse may not always automatically take control over all your assets when you pass away. While you may be married, the terms of a will or contract will be controlling.
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. "Beneficiary" is a person who receives assets from a will, life insurance policy, payable-upon-death account, or any other situation that transfers ownership after the death of the estate owner.
A contingent beneficiary will receive the gift from your estate if one or more given conditions are 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 not receive the car if he does not graduate from college. Thus, the vehicle only transfers upon the completion of the stated contingent condition.
When deciding how to complete your estate plan, you may want to weigh the pros and cons of putting conditions on the distributions of your assets.
Powers of Attorney
Powers of attorney are legal documents that give an appointed agent substantial power to make decisions on your behalf. The agent is granted authority to make significant life decisions for a person, usually when they are unable to 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 that would allow the agent to take any legal action on your behalf, or durable power of attorney for healthcare.
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 and with whom you have maintained a positive relationship. Once you think of a person, it is good to have a conversation about their role in this decision and clearly communicate your wishes.
Planning for Estate Taxes
Estate taxes are the taxes paid to the federal government (and sometimes also payable to state governments) on real and personal property inherited from a person who died. The estate tax is owed whether or not the person died with a will. To establish the estate's taxable value, you need to find the total value of the estate and subtract the debts it owes.
Usually, estate taxes do not apply to estates with a taxable value of less than $11.7 million for 2021. Fortunately, that means that most loved ones left behind after someone dies will not have the extra stress of working with the Internal Revenue Service (IRS) to pay off what could become a large tax bill.
Estate Planning: Additional Resources
Major life events should be planned for. But while we think about where our property will go after we die, many of us do not think about what would happen if we become unable to 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 one of the most important steps any person can take to ensure that their final property and health care wishes are honored and that loved ones are provided for in their absence.
Get Legal Help With Your Estate Planning Needs
Having an estate plan in place for when you die is one of the most thoughtful things you can do for your loved ones. But, making sure that your estate plan is done correctly can be tricky.
An experienced estate planning attorney can explain all options available to you in meeting your goals and fulfilling the needs of your loved ones. So, 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 to get started on your estate plan today.
Can I Solve This on My Own or Do I Need an Attorney?
- DIY is possible in some simple cases
- Complex estate planning situations usually require a lawyer
- A lawyer can reduce the chances of a family dispute
- You can always have an attorney review your forms
Get tailored advice and ask your legal questions. Many attorneys offer free consultations.