Estate planning refers to the decisions you make and legally document that allow for the disposition of your assets when you die. In the event you become incapacitated and are unable to make decisions for yourself, estate planning also allows you to give durable (lifelong or until you change it) power of attorney to someone you designate; set up a living trust; create a living will regarding life-support measures; and enable your designee, as your medical power of attorney, to carry out your instructions regarding your health care.
What is an Estate
An estate comprises your personal assets minus your liabilities, which, in turn, determines your net worth. An estate can include anything -- automobile, home, furniture, baseball card collection, timeshare in Costa Rica, portfolio of stocks and bonds, the contents of your closets, any business ownership arrangements and everything else you own.
Why a Will Isn't Enough
Creating your will is an important part of estate planning. A will designates your wishes regarding who should be the executor of your estate and who should receive your personal possessions so that such decisions are not left up to the courts. A will, however, does not include the designation of a durable power of attorney or someone to follow your health-care directives.
Who Needs an Estate Plan
Estate planning is not of particular benefit to everyone. For those with basic holdings such as material possessions, some property, checking and/or savings accounts and other uncomplicated financial arrangements and with no desire to specify a power of attorney, a will may be sufficient.
Estate planning should be undertaken, however, when it becomes apparent that disposing of your estate after your death or caring for you if you are incapacitated would entail attorney fees, court costs, legal wrangling, conflicts of opinion, ill will, family fractures and a painful and drawn-out struggle.
How to Develop an Estate Plan
The first step in estate planning is making an inventory of your assets. Forms to guide you through this process can be obtained from your state bar association, on legal-assistance websites and in bookstores. You will need to list your assets, the cost of each, the date each was acquired, the market value of each and the type of ownership (for example, joint, partnership or LLC.).
Although legal documents eventually need to be drawn up, once you have a list of your assets, certified public accountants, financial planners and bank trust officers can offer excellent advice and input for your estate planning.
You need to consider whom you trust to follow your instructions regarding your health care in the event you are unable to convey your wishes personally, and appoint that person as your medical power of attorney.
You also need to decide whom you want to empower to make legal decisions on your behalf if you are unable to do so. That person will be your durable power of attorney.
At this time, you should consult with family members if you value their input as to the disposition of your assets.
Who Benefits from Estate Planning
First of all, estate planning benefits you, as the one who is making the plan. It allows you to decide who gets which assets after you die, so that family heirlooms stay in the family and valuable collections can be passed on to others who will care for them. You can also demonstrate your love and appreciation to those to whom you've been especially close. By establishing a power of attorney, estate planning also ensures that your wishes are carried out regarding your final days of medical care and any specific procedures following your death, including funeral, memorial service, disposition of your remains and organ donation.
Second, because an estate can be subject to estate, income, gift, capital gains and property taxes, your beneficiaries benefit from the careful planning that results in minimal tax consequences so as to preserve as much wealth as possible, and that results in a smooth and efficient execution of your wishes without needless delays and legal questions.