What Is Estate Planning? Everything You Need to Know

Are you curious about estate planning but think it sounds like something that’s just for millionaires? Or maybe you know you need an estate plan, but you’re not quite sure how to get started. There’s good news: Estate planning can benefit anyone regardless of what you own, and it’s easy to take that first step. Just start by learning about some estate planning basics, and connect with an attorney when you’re ready.

What is estate planning?

While it may seem complex at first glance, estate planning is much simpler than most believe. At its core, it involves creating legal documents like wills, trusts, and powers of attorney to protect your estate after you’re gone. Estate planning also ensures that your wishes are followed, minimizes taxes, and provides peace of mind for your loved ones.

Purpose of making an estate plan

An estate plan provides a clear roadmap for your loved ones to follow after your death or incapacitation. A complete estate plan helps you:

• Avoid legal disputes. Clearly defined plans prevent conflicts among family members over asset distribution and guardianship.
• Minimize taxes and expenses. Estate planning can reduce inheritance and estate taxes so that your assets go where you really want them—to your beneficiaries.
• Provide financial security. Properly managing and distributing your assets means you can support your loved ones over the long term, even after your death.
• Protect minor children. Minor children can’t directly inherit assets. Designating guardians and creating trusts helps ensure they get the inheritance they deserve.
• Communicate your wishes. You can set up legal documents that outline your estate, medical, and healthcare wishes, even if you're unable to communicate them.

Estate planning checklist

Estate planning can feel like a big task, but as with any goal, the most important step is the first one. This estate planning checklist can help you get started and stay organized. 

• Take inventory of your assets. Include both tangible and intangible assets like real estate, bank accounts, investment accounts, retirement accounts, personal possessions, and business interests.
• Make a list of your debts. Document mortgages, loans, credit card balances, and any other liabilities so you can determine how you’ll cover them.
• Update beneficiaries. Review your retirement savings, insurance policies, and annuities, and make sure your beneficiary designations are up to date.
• Consolidate your accounts. Simplify management and distribution by consolidating financial accounts or creating joint accounts where possible.
• Write a will: Clearly outline how you want your assets distributed and name guardians for minor children. Consider creating both a last will and a living will.
• Consider your digital presence. Make a list of all your usernames and passwords for your digital assets, like social media accounts. This list should be separate from your will, which is a public document.  
• Make a plan for incapacitation: Assign powers of attorney and healthcare proxies so others can act on your behalf.
• Create a trust: Explore trusts, education savings accounts, and other financial tools to help minimize the estate tax and avoid the probate process.
• Summarize instructions: Create a guide that summarizes where to find and how to access all of your assets, who to notify of your death, and your funeral wishes.
• Regularly review your documents: Many estate planning legal documents, like revocable trusts, should be reviewed and updated to reflect life changes or new laws.
• Hire an estate planning lawyer: An experienced lawyer can help you navigate complicated estate planning documents and streamline the process.

Common estate planning documents

As you begin to learn more about estate planning basics, you’ll see a few documents that pop up again and again. Here’s what you need to know about common estate planning documents.

Wills

A will is a legal document that ensures your wishes will be respected. A last will takes effect upon your death. It outlines how your assets and property will be distributed, and it can also designate guardians for minor children. A living will, also known as an advance healthcare directive, outlines your wishes regarding medical treatment and end-of-life care.

Trusts

A trust is a legal arrangement in which a trustee holds and manages assets for your beneficiaries according to terms you set as the trust creator. With a revocable living trust, you can alter your beneficiary designations or even dissolve the trust during your lifetime, but it becomes irrevocable upon your death. In contrast, you can’t change an irrevocable trust once it’s established, which offers greater protection against creditors.

Durable power of attorney

A durable power of attorney, also called financial power of attorney, is a legal document that grants a trusted person the authority to make financial decisions on your behalf if you become incapacitated. Without it, a court will have to assign someone to manage your affairs, which can be a long and costly process.

Healthcare power of attorney

Healthcare power of attorney designates someone to make medical decisions for you if you’re unable to do so. It’s typically included in a living will but can also be a separate legal document. With this designation, you can be confident your medical wishes will be honored.

Letter of intent

A letter of intent is a non-legally binding document that provides specific instructions, wishes, and information to your executor, family members, and friends. It can include details about your financial affairs, desired funeral arrangements, care for your pets, handling of digital, physical, and intangible assets, and personal messages.

Guardianship designations

Guardianship designations specify who will take care of your minor children if you die or become unable to care for them. Keep in mind that if you’ve created a trust as part of your estate plan, you still need to designate a guardian separately. A trustee is only responsible for managing and distributing your assets—providing food, shelter, transportation, and love falls to the guardian.

Do you need an estate planning attorney?

You don’t necessarily need an attorney to make an estate plan, but it’s a good idea. They can help you avoid common estate planning mistakes and correctly prepare your documents so they’re legally binding. It’s an especially good idea to hire an estate planning attorney if any of the following situations apply to you.  

You live in a state with its own taxes

The estate tax from the federal government only applies to assets of more than $13.61 million. However, some states also have their own taxes. For example, in Oregon, assets over $1 million are taxed—an amount many people easily reach with only their homes, investments, and retirement accounts. An attorney with experience in your state can help you make a valid estate plan to minimize your tax liability.

You have significant assets

Anyone with property, investments, or valuable physical assets, like expensive cars, art, or jewelry, needs an estate plan to specify how those assets should be handled. In addition, you’ll want to be sure you set up trusts using the right legal language. An attorney can help you determine which type of trust will best protect your assets.

You own a business

If you own a business, your estate plan needs to minimize taxes and streamline business succession. For instance, you might need to create a buy-sell agreement to outline what happens to the business upon your death. An attorney can make sure the business you worked so hard to build is protected.

Your family situation is complex

A complex family situation may require a more complex estate plan. For example, if you’re in a second marriage and have children from one or both marriages, you may want to set up a qualified terminable interest property (QTIP) trust to make sure everyone is provided for. Or, if you have a special needs family member, you can set up a special needs trust to support them.

You have a chronic health condition or disability

For individuals with chronic health conditions or disabilities, it’s important to have an estate planning attorney create documents like durable powers of attorney and healthcare directives. These estate planning documents help your family members advocate for your needs when you cannot.

How much does estate planning cost?

The cost of estate planning varies based on the complexity of your needs and which documents you want to set up. Many estate planning lawyers charge by the hour, with rates ranging from $150 to $400 per hour or more. On average, creating a basic will might take around four to eight hours. A more complex estate plan, for example, including a revocable living trust, could take 10 to 20 hours or more.

You can also find estate planning services for a flat rate, either per document or as a bundle. For example, LegalZoom’s basic will package includes a last will and testament, healthcare directive, durable power of attorney, and HIPAA authorization and starts at $149. You can also set up a living trust starting at $399.

Want more guidance from an estate planning lawyer? You can also get professional estate planning advice. With the right assistance, you’ll soon have confidence that your estate—and your loved ones—are protected.

FAQs

Is it worth hiring a lawyer for estate planning?

Yes, hiring an estate planning lawyer is worth it. They provide expert guidance, ensure legal compliance, and help you avoid costly yet common estate planning mistakes. The best estate planning attorneys also tailor your estate plan to your specific needs and state laws.

How are survivorship life insurance policies helpful in estate planning?

Survivorship life insurance policies provide a payout after both policyholders die. These policies avoid probate court and provide immediate cash flow that can be useful to cover estate taxes or provide financial security.

What is the role of an executor in estate planning?

The executor administers your estate by managing assets, paying debts, and distributing property according to your will. They play an essential role in ensuring your wishes are fulfilled, and the estate is settled efficiently and legally.

What is the consequence of not writing a will and planning for your estate after your death?

Without a will, your estate is distributed according to state intestacy laws, which may not reflect your wishes. Leaving your estate to the courts can also mean prolonged legal processes, additional expenses, and potential financial hardship for your loved ones if they can’t access their inheritance.