Estate Planning Basics

Purpose of Estate Planning

Estate planning has three main objectives:

1. Provide for any minor children's needs

2. Transfer assets to the correct beneficiaries.

3. Minimize the amount of taxes and fees you and your heirs pay to accomplish the above two goals.

Even if you have no children and few valuable possessions, you may want to leave sentimental items to friends or family. A simple estate plan will help you accomplish this goal.

Estate Planning Process

Estate planning can either involve the execution of a few key documents or be extremely thorough and complex. The simplest estate planning involves the execution of only a will, while the most complex estate plans may involve various trusts, charitable foundations and business continuation plans.

Most people need something in between: a living will, power of attorney, and healthcare proxy for the transition period before death, and a will, proper titling of property and vehicles, beneficiary designations on accounts, and perhaps a living trust. As with any service, the more complex the planning the higher the cost. While it's important to be thorough, it's also important not to go overboard.


The foundation of any estate plan, complicated or not, is a properly executed will. A will alone can accomplish two of the three main estate planning objectives - providing for minor children and passing assets to the correct beneficiaries.

If you have minor children, you will name a guardian to care for them if both parents pass. You will also name a conservator (financial guardian) who will be responsible for managing their financial situation. This can be the same person that takes guardianship or a different person.

The will will also name an executor to carry out the formal duties of distributing the estate, paying taxes, etc. You should name at least one backup for each of these positions.

The one thing a will alone cannot accomplish is minimizing the amount of fees and taxes your heirs pay. In fact, any assets that pass through the will, rather than another method, must go through a process called probate. During probate, the court re-titles any assets into the name of your heirs and ensures that taxes and debts are paid off. Probate is not only costly and time-consuming, it is a public process.

That being said, sometimes the cost of probate is worthwhile, especially if your estate owes a significant amount of debt. Also, even if you've done your probate-avoidance homework, certain assets may slip through the cracks. An estate planning attorney can issue guidance on your particular situation.


Jointly titling assets is an easy and inexpensive way to pass an asset outside of probate. However, if the joint owner is not your spouse, this may result in unintended consequences. There are two methods of holding joint title with a non-spouse:

Joint tenants with right of survivorship

Once one owner dies, any remaining owners split the deceased's share equally.

Tenants in common

The owner of a share may choose to pass its ownership to anyone, even if they are not existing co-owners, via his or her will.

Joint tenancy will avoid probate, but may open up the asset to creditor claims against any co-owners. Tenancy in common will not avoid probate and may open a portion of the asset to creditor claims.

Beneficiary Designation

Naming a beneficiary is a free and fairly simple way to pass assets. The beneficiary does not have access to the assets until you die, which avoids creditor claims. In addition, you may designate multiple beneficiaries and allocate how much each person receives.

There are three main items to watch out for when naming a beneficiary. First, be careful when naming a beneficiary who is not your spouse. Second, make sure you name all desired beneficiaries. Last, make sure to periodically review your designations to ensure they are up to date.


Trusts are more complex planning tools than those previously mentioned. Most people will want to use an attorney to set up a trust, which can be costly. In addition, you must assign a trustee to administer the trust. Many people do not have a family member or friend who is willing to take on this duty, and while banks and other companies can serve as trustees, this can be extremely expensive.

Trusts have three main benefits: providing a method of transferring assets to benefit minor children, reducing the size of the probate estate to almost nothing, and potentially minimizing estate taxes. This last point may not apply to most estates, at least on the federal level, since the estate tax exclusion is several million dollars.

While many estate planning articles mention the tax benefits of trusts, few mention the tax complications. Because living trusts are not considered separate entities for tax purposes, while the grantor (creator) is alive, he or she will simply file taxes as usual. However, once the grantor dies, the trust lives on and becomes a separate entity. The trustee must obtain an EIN number AND file a separate tax return for any trust income. Since trust tax returns require specialized knowledge to file, they are usually more expensive than standard tax returns.

Order of Authority

When setting up your estate plan, it is essential to make sure all your documentation and designations agree. There are categories of transfer, listed here in order of authority:

1. By operation of law. This includes beneficiary designations, POD designations and joint tenancy with right of survivorship.

2. By contract. This includes trusts and life insurance contracts.

3. By administration. This includes any assets that you own individually which must pass through probate.

It is important to make sure you keep in mind this order of authority. For example, you list your daughter as the recipient of your bank account in your will but name your son as a joint owner, your son will receive the funds in the account and your daughter will receive nothing.


In summary, estate planning doesn't have to be strenuous. If you need assistance with the process or have questions, contact an estate attorney or set up a free consultation.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Modern Money Advisor LLC (referred to as “MMA”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. MMA does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall MMA be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if MMA or a MMA authorized representative has been advised of the possibility of such damages. In no event shall MMA have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.