What Is an Estate Plan?

Christian Worstell
In this article...
  • Learn what an estate plan is, and find out how it impacts your beneficiaries after your death. Discover what's involved in the process of estate planning.

An estate plan is a set of documents that explain how you want your assets to be distributed after your death. In many cases, the plan also includes instructions for handling medical and financial decisions in case you become incapacitated. A solid estate plan ensures that your affairs are handled according to your wishes.

How to Write an Estate Plan

Everyone's estate-planning process is different, but most include a variation on the same essential steps. While there are many DIY estate plans available, it's typically a good idea to work with a trusts and estates attorney — especially if you have a large or complex estate. That way, your plan is more likely to stand up to disputes that may arise after your death.

1. Inventory and Value Your Assets

The first step in estate planning involves taking inventory of your assets and determining their value. This includes both tangible assets, such as property and vehicles, and intangible assets, such as investments and life insurance policies. Other assets to consider are:

  • Cash in savings and checking accounts
  • Ownership stakes in businesses
  • Retirement accounts
  • Personal property, including art and jewelry
  • Recreational vehicles
  • Family heirlooms

2. Write and Sign a Will

A will is the most important part of your estate plan. It explains exactly how you want your assets to be distributed. It also takes care of your personal affairs. In general, a will should:

  • Name an executor or personal representative: Choose the person you want to handle your estate after you die. This individual will be responsible for initiating probate, ensuring your debts are paid, filing your final income tax return, distributing your wealth and carrying out any other terms in your will.

  • Designate a guardian: If you have minor children, choose who should become their guardian. Otherwise, the state will decide on your behalf. You can also choose a guardian for your pets.

  • List your assets and debts: Include all the items you inventoried, as well as any financial obligations you have.

  • Name your beneficiaries: Explain exactly who should benefit from your estate when you pass away. You can name individuals or generations.

  • Make bequests: If you want certain items to go to specific people, you can say so in your will.

When you're naming beneficiaries and making bequests, it's also important to determine how the rest of your assets should be distributed. For example, you might direct the estate to be split among your surviving children and grandchildren, per capita. That means each living child and grandchild would get an equal share of the estate.

If you leave the estate to your children, per stirpes, each child would be allocated an equal share. If one child passes away before you do, their share would be split equally among their children.

After you die, your will usually goes through probate to ensure it's valid. Your executor will carry out the terms. A specific, legally sound will can speed this process and reduce disputes.

3. Consider a Trust

If you want to avoid a lengthy probate process, you might consider setting up a trust. That way, you can transfer your assets into the trust before or after your death. They'll pass on to the control of a trustee of your choice, who will distribute them according to your wishes. Depending on the type of trust, you may be able to avoid probate and reduce estate taxes.

4. Integrate Life Insurance Into Your Estate Plan

Life insurance can be a useful part of your estate plan — it can be used to pay estate taxes, cover funeral costs and settle your debts. You can also use the death benefit to care for your family's needs and provide fast, tax-free cash payouts to heirs. This ensures they receive their inheritance quickly, without the need to sell your property.

5. Make Funeral Arrangements

Ease the burden on your family by planning your funeral in advance. This typically includes setting aside money for expenses and buying a burial plot. You can also choose a location and designate someone to plan the event.

6. Create a Durable Power of Attorney (POA)

When you grant someone a durable POA, you give them the ability to manage your legal and financial affairs on your behalf. This person only needs to act if you're unable to communicate your wishes due to a medical emergency. To restrict your representative's powers, you can grant them a limited POA that applies to specific tasks.

7. Sign Advance Directives

An advance directive is a legal document that explains your medical care wishes. If you're ever incapacitated due to a coma, stroke, dementia or another health condition, your doctors will refer to this document when deciding how to proceed.

Your estate plan might include a variety of advance directives:

  • Living will: This document explains how you want your medical treatment to be handled in case you can't make decisions for yourself. It can include your preferences for treatments, medical equipment, feeding and medication. You might also lay out when and how you want doctors to prolong your life.

  • Medical power of attorney (POA): If you want someone else to make healthcare decisions on your behalf, name them as your proxy with a medical POA.

  • Do not resuscitate (DNR): This document details how and when you want medical staff to resuscitate you.

  • Organ donation: If you want your organs or tissues to be available for donation, you can note it using an organ donation registry or a separate document.

  • Physician orders for life-sustaining treatment (POLST): A POLST is a medical order your doctor creates, typically if you have a serious illness or you're nearing the end of your life. It reinforces the information in your advance directive and explains how to treat you in case of a medical emergency. A copy of the form goes in your medical record, so first responders and doctors can access it easily.

Every state has its own rules about how you must notarize advance directives. Many states require one or two witnesses and/or a notary. In some states, your living will is invalid if you're pregnant.

Ways To Reduce Estate Taxes

Most Americans don't need to worry about estate taxes — in recent years, just 0.2% of people who have died have needed to pay the tax. That's because the Internal Revenue Service (IRS) doesn't require you to file an estate tax return unless your estate is worth more than $12,060,000 in 2022. However, your state may have its own inheritance or estate taxes. If your estate is large enough, there are ways to reduce the taxes.

  • Put assets into one or more trusts
  • Give assets to family members
  • Create an education fund for beneficiaries
  • Set up a family limited partnership
  • Freeze your assets
  • Make tax-deductible donations before your death

Estate planning can be complicated. To streamline the process, create a plan as soon as you have appreciable assets. Then, you can update it regularly to account for changing financial and family situations. 

Christian Worstell
About the Author

Christian Worstell is a senior Medicare and health insurance writer with HelpAdivsor.com. He is also a licensed health insurance agent. Christian is well-known in the insurance industry for the thousands of educational articles he’s written, helping Americans better understand their health insurance and Medicare coverage.

Christian’s work as a Medicare expert has appeared in several top-tier and trade news outlets including Forbes, MarketWatch, WebMD and Yahoo! Finance.

While at HelpAdvisor, Christian has written hundreds of articles that teach Medicare beneficiaries the best practices for navigating Medicare. His articles are read by thousands of older Americans each month. By better understanding their health care coverage, readers may hopefully learn how to limit their out-of-pocket Medicare spending and access quality medical care.

Christian’s passion for his role stems from his desire to make a difference in the senior community. He strongly believes that the more beneficiaries know about their Medicare coverage, the better their overall health and wellness is as a result.

A current resident of Raleigh, Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. You can find Christian’s most recent articles in our blog.

If you’re a member of the media looking to connect with Christian, please don’t hesitate to email our public relations team at Mike@MyHelpAdvisor.com.

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