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What Is Estate Planning?

Estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.

KEY TAKEAWAYS

  • Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death or in the event they become incapacitated.
  • Planning tasks include making a will, setting up trusts and/or making charitable donations to limit estate taxes, naming an executor and beneficiaries, and setting up funeral arrangements.
  • A will is a legal document that provide instructions on how an individual’s property and custody of minor children, if any, should be handled after death.
  • Various strategies can be used to limit taxes on an estate, from creating trusts to making charitable donations.

Understanding Estate Planning

Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death. It also takes into account the management of an individual’s properties and financial obligations in the event that they become incapacitated.

Assets that could make up an individual’s estate include houses, cars, stocks, artwork, life insurance, pensions, and debt. Individuals have various reasons for planning an estate, such as preserving family wealth, providing for a surviving spouse and children, funding children’s or grandchildren’s education, or leaving their legacy behind to a charitable cause.

The most basic step in estate planning involves writing a will. Other major estate planning tasks include the following:

  • Limiting estate taxes by setting up trust accounts in the names of beneficiaries
  • Establishing a guardian for living dependents
  • Naming an executor of the estate to oversee the terms of the will
  • Creating or updating beneficiaries on plans such as life insurance, IRAs, and 401(k)s
  • Setting up funeral arrangements
  • Establishing annual gifting to qualified charitable and non-profit organizations to reduce the taxable estate
  • Setting up a durable power of attorney (POA) to direct other assets and investments