What is an Estate Plan & What Should it Include?

A Guide to Estate Planning Options & How to Plan for the Future

Feb 25, 2010
Carol Finch

What is an Estate Plan & What Should it Include? - forwardcom

An estate plan ensures that assets go to the right people quickly with minimum tax liability. Planning also protects the wishes of the individual in certain situations.

Although many believe that estate planning is for the ultra-wealthy, this isn’t necessarily the case. Anyone with any assets to leave may find it useful to set up an estate plan. This may take a little time and effort for some; others may find it a relatively simple process.

What is an Estate Plan?

An estate plan involves a range of resources and legal documents that are designed to help administer an individual’s estate in the event that they die. It can also be used to give guidance in situations where the individual is no longer able to make decisions of their own.

The process involves assessing assets (and liabilities). Some may also want to think about/discuss with their families certain life choices to better manage what may happen in the event of serious illness or death.

The general aims of estate planning are to:

Release/distribute assets to chosen beneficiaries more cost and time effectively (i.e. to bypass/speed up probate times and to minimize tax liabilities).
Formally lay down the wishes of the individual in circumstances where they may have no “voice” of their own (i.e. to help manage their finances and to have medical decisions made for them if they are physically/mentally incapacitated).
Protect any dependents and to provide for them financially as necessary.

The actual components of any plan may vary according to the value of the estate and the wishes and circumstances of the individual.

What are the Components of Estate Planning?

There are a variety of components that can be used in an estate plan. Some commonly used options include:

Wills: A will allocates assets according to the wishes of the individual. It also sets out who will be the estate’s Executor and those with young children may choose to name a guardian to take responsibility for them in the event of parental death.
Living trusts: Putting a property into a living trust may well help avoid beneficiaries having to go through a probate court process.
Estate tax saving trusts: Those likely to be hit by estate taxes have ways that they can minimize costs. Marital bypass trusts, for example, and gift tax exclusions may be useful.
Financial power of attorney: Many people will use the estate planning process to name a financial power of attorney to take care of their finances if they are unable to do so themselves.
Life insurance: Those that still have some financial liabilities/dependents may also opt to review their insurance coverage as part of their estate plan. They may also want to consider life insurance trusts to minimize estate taxes.
Beneficiary Forms: Accessing financial accounts can be made a lot easier if they are given a named beneficiary. This may see accounts transferred automatically without having to go through probate.
Health care directives: Many estate plans also include directives such as living wills, advance care instructions, organ donation wishes and health care power of attorney. In the event that the individual becomes so physically or mentally incapacitated that they can no longer make their own decisions, this ensures that their wishes are respected and represented.

On a less formal basis some will also discuss their preferences for funeral arrangements with their families as part of the estate planning process.

What Should an Estate Plan Include?

The actual components of an estate plan should be based on the individual, their circumstances, finances and needs. Some need no more than a basic will; others may need a wider range of measures. As a general rule of thumb, estate plans may need to include more components as assets and responsibilities grow with age.

The fact that each individual may have different needs and wishes means that many will seek advice from an experienced estate planning attorney and/or a CPA before they put together their plan. Those looking for advice or needing to find a local attorney may find the American Academy of Estate Planning Attorneys a useful starting point.