Estate Planning

Estate planning is the process by which an individual transfers property to his or her heirs and other beneficiaries while minimizing the associated costs and taxes. Estate planning can also ensure that one's financial and medical matters are handled as desired after incapacitation or death. An estate is the total property owned by an individual prior to distribution through a trust, will, or based on state intestacy laws. The process of estate planning, which is the focus of this entry, includes taking an inventory of all assets, discussing important decisions with family members, such as who will serve as the guardian for any minor children, making a will and/or establishing a trust, and considering a living will, power of attorney, and life insurance. Many individuals also create estate planning strategies to minimize the estate taxes they pay. The issue of estate planning applies to all individuals, as every individual will eventually face death.

The first step of estate planning is taking an inventory of all assets, including residential property, other real estate, savings, investments, pensions and other retirement accounts, life insurance policies and annuities, business ownership interests, motor vehicles, jewelry, collectibles, and other personal property, and assigning a value to each asset. Professional assistance may be needed to assign realistic asset values. The main reason that every individual needs an estate plan is beyond the factor of taxes. Benefits of estate planning include making sure assets go where one wants them to after death, controlling assets while alive but incapacitated, minimizing the emotional and financial burden on survivors, minimizing feuds among survivors regarding one's estate, increasing the amount available for charitable donations, avoiding the cost and time of probate, and providing terms for a guardian of minor children.

Many people avoid or delay discussing estate planning for several reasons. Many do not want to face a subject that is related to mortality. Discussions of estate plans may lead to family conflicts, and many individuals do not want to discuss money with their successors. Many individuals are also hesitant to invest the time and money required to create an estate plan. The lack of an estate plan can lead to increased taxes in addition to unnecessary conflicts, anger, and confusion among the survivors, and it can also require more of the survivors' time. Individuals are encouraged to have a minimum of four estate planning tools, including a will and/or trust, a living will, a medical power of attorney, and a durable power of attorney.

Wills

A will is a legal document that specifies the transfer of one's property and assets after death, and its main purpose is to ensure that one's assets go to designated family members or other beneficiaries. About half of all Americans die without having a will, which means that the court distributes the decedent's property according to state laws, which may or may not coincide with the decedent's wishes. If an individual has no apparent heir, which is one whose right to an inheritance cannot be voided or undone except by exclusion under a valid will, it is possible for the state to claim the estate.

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