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Estate Planning

Estate planning is planning for what you want to happen to you and your assets at the end of your life. Many people think that estate planning just means preparing a will, but this type of planning actually covers much more.  


What Is Estate Planning?

Estate planning refers to the preparation of tasks that manage an individual's financial situation in the event of their incapacitation or death. This planning includes the bequest of assets to heirs and the settlement of estate taxes and debts, along with other considerations like the guardianship of minor children and pets. Most estate plans are set up with the help of an attorney experienced in estate law. Some of the steps include listing assets and debts, reviewing accounts, and writing a will.

Key Takeaways

  • Estate planning tasks include making a will, setting up trusts, making charitable donations to limit estate taxes, naming an executor and beneficiaries, and setting up funeral arrangements.
  • A will gives instructions about property and custody of minor children.
  • Various strategies can be used to limit taxes on an estate, from creating trusts to making charitable donations.
  • Estate planning can and should be used by everyone—not just the ultra-wealthy.

Importance of Estate Planning

Estate planning helps an individual to decide how his/her assets will be managed and owned after their death or incapacitation. It is a tax-proficient, easy way of transferring the assets to the family. Below lists reasons that estate planning is important:

1. Plan how the assets are to be segregated

In the absence of an estate trust, governments may decide on the allocation of assets. It could mean that a friend or a non-family member could get the assets ahead of the immediate family members. Hence, it is important to plan the allocation of assets so that the right people who the grantor of the estate planning deems to be the beneficiaries are allocated the assets.

2. Proficient and faster transfer of assets

Without a plan, many estates take a long time to settle, as disputes may arise among the family members on the allocation of the assets. Hence, it is important to have a plan in advance so that the estate can be transferred proficiently to the beneficiaries.

3. Plan how assets are managed during  lifetime

Estate planning can also help an individual in deciding who will manage and own the assets when the grantor is alive but is not in a position to manage the assets due to an accident or illness.

4. Reduce fees and taxes

As mentioned above, without an estate plan, there can be a lot of fees and taxes involved in the transfer and segregation of assets. Hence, with an estate plan, the grantor can reduce fees and taxes, which will help avoid more money being taken out of the estate to pay the said fees and taxes.

Who needs an estate plan?

The easy answer is everyone. Of course, hiring an attorney and creating an estate plan may not be an option for everyone. There are online basic estate plans if you need a more affordable option than an attorney. But if you have children or other dependents, or you have substantial assets, stick with an attorney.

Even if you don't fall into any of those categories, you should still consider working on an estate plan. It's impossible to know when you may become incapacitated, and some pieces of the plan can take a long time to come together.

What are the benefits of creating an estate plan?

Here are a few key benefits of creating an estate plan now:

  • You make the decisions about your medical care and assets: If you die or become incapacitated before you put your desires on paper, a court will decide what happens. This means a government-appointed guardian may make medical decisions for you, including whether you should be moved to a nursing home (with your assets sold to pay for it). And probate court will divide up many of your assets. 
  • You can minimize tax: In 2023, the first $12.92 million of a single person's estate is exempt from federal estate tax. For married couples, the first $25.84 million is shielded. In 2024, these exemptions are $13.61 million for single people and $27.22 million for married people. That may seem like a high bar now, but there is no guarantee that these numbers won't go down in the future. Putting assets in a trust, choosing how to determine value, or leaving all assets to a spouse who then claims an exemption can all reduce estate tax. There are also fees for probate and other estate management items that you can reduce or eliminate with proper planning.
  • You can plan for dependents: Even if you don't have a lot of assets yet, you can work on a life insurance plan to temporarily support your dependents in a worst-case scenario. You also want to decide who will have custody of your minor children and how many pets will be cared for. 

8 steps to creating an estate plan

Here are the steps to creating and maintaining an estate plan:

1. Make your medical decisions

This includes deciding when and if you will move into a nursing home, how much and what kind of care you wish to receive, and who can make medical decisions for you if you are incapacitated.

2. Choose a trusted person

You'll need to choose the person, known as a healthcare proxy, who will make medical decisions if you're unable to do so. You'll also want to designate someone as power of attorney to manage your financial affairs and property if you can no longer do so. This person is often a child or spouse, but it can be anyone you choose.

3. Update your paperwork

Make sure the beneficiaries on any life insurance policies and retirement accounts are updated. Beneficiary designations supersede your will instructions. That means that even if you leave all your assets to someone in your will, the person listed as the beneficiary will receive the policy or retirement account. You don't want a death benefit to go to an ex-spouse because the forms were never updated.

4. Value your assets

Put together a personal balance sheet that includes real estate, stock, bank balances, vehicles, collectibles, and all liabilities. Keep these values updated. If you set up a trust and then accumulate new assets, you could add years to the process.

5. Decide how the assets will be divided

Unless you set up an irrevocable trust, these decisions can be changed. After you do this, make your bank account payable on death. This will make it so the money avoids probate and goes directly to the beneficiary.

6. Make a succession plan for your business

If you own and run a business, you probably have an idea how difficult it would be to adjust operations if you weren't there. Put a plan together for future ownership and who will manage the company.

7. Engage an attorney

No matter what size your estate is, you'll benefit from working with a professional. You can also disregard the order of this list if you're having problems and engage an attorney for help at any time.

8. Decide what type of life insurance and long-term care insurance you need

Life insurance will support your dependents, and long-term care insurance can save your assets from being used to reimburse Medicaid.


Frequently Asked Questions