Estate Planning 101

Know the basic legal documents needed to manage property and end-of-life wishes

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.

Wills for basic estate planning

While estate planning runs the gamut from a simple document or two to complicated setups with managed trusts and timed payouts, there are a number of common arrangements and documents to consider.

In a will, you can specify:

  • What property you wish to leave to family, friends, and organizations.
  • Who you wish to act as guardian and manage property for any dependent children.
  • What person should act as a personal representative or executor to manage your estate at death, pay debts and taxes, and distribute remaining property as you specify.
  • Whether you want to cancel any debts still owed to you at death.
  • How outstanding debts and taxes should be paid.

A will is the most basic estate planning document there is -- and for some people, it represents the only estate planning they want or need to do.

A will alone, however, may not be sufficient to meet everyones' needs if they:

  • Expect to owe estate taxes when either or both of them die -- which is most likely if they own property worth $2 million or more.
  • Want to have some control over what happens to their property after their deaths, such as specifying that a house goes first to their children, then to their grandchildren (after their children die).
  • Have any child who has a special need or disability, and they want to provide management for property that goes to him or her.
  • Have children from one or more prior marriages who are likely to conflict with a current spouse.
  • Fear that someone may claim their wills are invalid because they were mentally incompetent or subject to fraud or duress when writing them.

For those with such concerns, they should consider setting up a trust instead of or in addition to a will.

Trusts for basic estate planning

Trusts are legal arrangements that give a person or a group of people the right to hold and manage specific assets. That simple definition aside, there are dozens of ways trusts can be set up and administered.

One general difference between estate planning trusts is that some are "revocable" (meaning that the indivduals can change their terms at any time, as long as they are mentally competent to do so) while others are "irrevocable" (they can't be changed or amended once created).

These days, the most common type of estate planning trust is a revocable living trust, which allows people to enjoy and control the trust's assets during their lifetimes and then automatically shift ownership of the property in the trust to a named trustee or trustees at death. The arrangement operates much as a will does, except that upon death, the trust property will not be processed through probate -- which can add administrative and legal costs and also delay the time it takes for the property to transfer to the beneficiaries.

Living trusts may not be a wise choice, however, if someone:

  • Has set up most property ownership in joint tenancy or pay-on-death transfers.
  • Owns very little valuable property.
  • Doesn't have a person he trusts to oversee his property.
  • Is involved in divorce proceedings, as some state laws bar creating such trusts once a divorce is filed.

Other estate planning elements

There are several other types of estate planning documents people should consider, depending on their circumstances.

Joint ownership. When property, such as a house or bank account, is held in joint tenancy (also called tenancy by the entirety), it will pass automatically to the named survivor. Like living trusts, property in joint tenancy doesn't go through probate. This is a good setup if the survivor is a spouse, close relative, or close friend who can be trusted not to sell or squander his or her share of the property.

Transfer or pay-on-death designations. Those who have an account in a bank, savings and loan, or credit union may be able to designate a beneficiary to automatically take the account funds at their deaths; these are called payable-on-death accounts. A similar legal arrangement, a transfer-on-death designation, allows them to register stocks, bonds, and brokerage accounts so that a named survivor takes them automatically at death. Both methods avoid probate.

Powers of attorney for finances. This document allows them to name a trusted person, called an attorney in fact, to handle their financial matters if they become unable to handle them on their own. Durable powers of attorney for finances are mainly preventive documents. If they don't have them and they become mentally incompetent, a judge will have to appoint someone to manage their finances for them -- even if the appointee is unfamiliar with them or their money matters.

Health care directives and powers of attorney for health care. These documents, also called advance health care directives, allow them to instruct healthcare providers about what life-prolonging treatments they want and don't want if they're no longer able to express themselves -- and to name an individual to oversee their care to be sure those wishes are enforced, sometimes in a separate document called a durable power of attorney for health care. Although state laws differ slightly, these directives are usually enforced only if someone is close to death from a terminal condition or in a permanent coma.

Final arrangements. This document will give legal force to their wishes to be considered for body and organ donations, and it can also state their preferences to be buried or cremated. As with other types of documents that take affect after death, they may also choose to name a person to oversee that the stated wishes are carried out as written.

3 months ago, said...

Check out They have a nice free E-book on the subject.

6 months ago, said...

We have been living with my mom and paying her house payment for the last 8 years. She did a warranty deed and beneficiary deed that the house would be ours when she passed. She still ours $50,000.00 on house. Will bank honor these documents. She also has a will stating this. If she needs to go to a nursing home will we lose house to nursing home bills?

about 1 year ago, said...

Estate planning is one of the smartest things to prepare, if and when you pass. When my grandmother passed, it was mess! All the kids argued over who should get the car, the house, etc. There is so much stress and grief already, why not be smart and plan ahead? I love how you verified that it is not only for the rich! Everyone should plan and prepare. Thanks for the article!

about 1 year ago, said...

My father wants to start dealing with his estate planning documents and I don't really know much about how it all works. I have been doing a lot of research and I have found a lot of useful information! I really loved reading this article because it is explained very well and I have learned a lot! I will definitely use this information throughout the process, thank you for sharing!

over 1 year ago, said...

Having a plan for how things are going to be handled after your death is a good idea. That doesn't mean that you have to be rich to work this out, though. Personally, I'd prefer to have a say in who would get my property and stuff like that. I know my family better than some stranger, so I know who would need more assistance.

over 1 year ago, said...

It's true that these decision aren't casual every day ones. Usually these are things that encompass a person's deepest preferences as well as beliefs. I definitely agree with the article: "...these matter require some soul-searching and forethought..." Most of the older people in my family are pretty stubborn about working on these things, but it really is better to do it sooner than later. Thanks for the great article!

over 1 year ago, said...

I was thinking about getting my estate planning done. My mother just passed, so I need to figure out how it all works after she passes. We don't have a lot to leave our children, but we do have enough that I want to plan it out. My eldest has always been so responsible, so I'll probably have her make sure everything works out when I pass.

over 2 years ago, said...

RE : "Joint Ownership", I learned i could have a house or property I own held in 'joint tenancy' with adult offspring who would inherit said property.. and said property would not go through probate.

about 4 years ago, said...

I lost my mother who died @ 41 of cancer;I was only 19.Since then,I have worked in 2 hospitals and "In Home Nursing" as a Home Health aide and not once were we thought what to look for in a dying person.We were told things in a general way,but very little. I think it should be mandatory that every health care worker should have this as a special class. I also think that Hospice care workeers should teach families what to look for,it would help them greatly.

about 5 years ago, said...

This is a very succinct and helpful article in simple and straightforward language.

about 5 years ago, said...

easy to read and understand; able to make a checklist of "to do's" from it

about 5 years ago, said...

Hello T.O., Thank you very much for your question. If you'd like, you can post it in our Ask & Answer section, here: ( ). I hope that helps. Take care -- Emily | Community Manager

about 5 years ago, said...

I have a question: How do we protect a nursing home from using our mom's land payment ? she has a living estate will but we are not sure of what the rules are on this when and if she goes into a nursing home... we need to know so we can get this started in time.... does a living estate will protect this? my husband is the power of attorny and also has joint accounts with her...

about 6 years ago, said...

Can MERF came back and get money out of checking accounts when you are consider below the average on Protected Resources Assessment by the state?

over 6 years ago, said...

I has been hearing comments about the Estate Planning and always I had said to me " We have time to do it" Now I found myself beign the caregiver to my wife ( Alzheimer) . Your article has made me aware that time to do important things is always now. I let it pass and it's going to be more complicated now. Thanks, I'm beginning to prepare my Estate Planning today. Keep your good work. Heliokopter

about 7 years ago, said...

super info for all people

over 8 years ago, said...

If my Mother goes into a nursing home, can the nursing home get money from her living trust or can they put a lean on the trust and collect after settlement? If so, what can be done to protect her home and assets? Transfer of title, sell the home?