Estate Planning 101

For those who haven't yet done any estate planning -- finalizing legal documents to manage and pass on property and set out wishes for end-of-life matters -- it's likely on their list of things to do.

You can provide some encouragement by taking the time to understand and then explain some of the basic arrangements involved in estate planning, and the protections and assurances they can provide.

What is estate planning?

Estate planning is a process in which individuals specify how their money and other property should be managed during life and after their deaths. And it commonly includes a related issue: directions about the type of medical care they want to receive if they become unable to communicate those wishes directly.

Specific final arrangements, such as whether to be buried or cremated, are also often part of the documents. And more sophisticated estate plans may even cover deferring or decreasing estate taxes or winding up a business.

While these matters require some soul-searching and forethought, estate planning is not the ordered and lockstep procedure that the term implies. In reality, it simply involves drawing up and finalizing one or more documents that give legal force to someone's wishes for property management and medical care.

What's in an estate?

When it comes to estate planning, myths and misconceptions abound. The primary one is that it's the province of only the very rich. But despite its lofty-sounding name, estate planning isn't reserved just for those who have a lot of money or property.

In the eyes of the law, an "estate" is simply all the property individuals own, both outright and jointly -- including bank accounts, real estate, stocks and bonds, vehicles, jewelry, retirement accounts, and even pets. And it includes interest and money to which they are later entitled, such as insurance proceeds and securities dividends.

What if there's no estate planning?

If they haven't done any formal estate planning, then decisions about their medical care, property, and final arrangements will be made without their input.

Medical decisions will fall to the treating doctor or hospital. Property will be divided and distributed at their death according to the hierarchy of survivors specified by state law. And final arrangements will be carried out according to the whims of relatives or in accord with community customs. And the plans these people or institutions put in place may not match the wishes of those for whom they're making the decisions.