A Comprehensive Estate Planning Guide and How to Get Started

Estate planning is often a neglected part of one’s financial planning. It is easy to delay addressing uncomfortable questions like, “what would happen to your estate and your heirs when you die?” It’s no surprise that many people still don’t have a will and fewer have a valid estate plan. We have created this comprehensive guide to help you learn the basics of creating accurate estate plans.

What’s Estate Planning?

Estate planning is the process of deciding and designating who will inherit your estate or other assets and handle your duties after your incapacitation or death. The primary goal of the estate planning process is to ensure your beneficiaries get estate or properties in ways that minimize different types of taxes such as gift tax, income tax, estate tax, and other taxes.

Effective estate planning can help create a platform you can fine-tune as your financial and personal situations change. An important question that you must address when creating your will and other components of an estate plan is, “how will your property be distributed if you are incapacitated or dead?”

The Basics of Estate Planning

As mentioned earlier, estate planning is all about determining how your assets should be preserved, managed, and distributed in case you are incapacitated or dead. It also accounts for the management of your properties and financial obligations in case you are incapacitated. Thus, it is recommended to create one early enough and update it whenever necessary.

Various assets that could make up your estate include stocks, houses, cars, horses, artwork, debt, and pensions. There are different reasons for planning an estate, including preserving your family wealth, funding your children’s education, providing for your surviving spouse and children, or leaving your legacy behind for a good charitable cause.

The basic and most important step in estate planning involves creating a will. Other important estate planning tasks include:

  • Setting up trust accounts in the specific names of your beneficiaries to limit estate taxes.
  • Establish a reliable guardian for your living dependents.
  • Updating or creating beneficiaries on various plants such as IRAs and 401 (k)s.
  • Making the right funeral arrangements.
  • Setting up a power of attorney to successfully direct other investments and assets.
  • Establishing yearly donations to the right charitable and non-profit organizations to minimize these taxable estates.

Creating a will

A will is simply a document written to offer instructions on how your assets and custody of minor children if any, should be handled after your incapacitation or death. It is a document that allows you to express your wishes through a legal document and names an executor or trustee that you trust to fulfill your stated intentions. Also, a will indicates whether a trust is necessary after your death.

The authenticity of a specific will is determined via a legal process commonly referred to as probate. Probate is the initial step taken to administer the estate of a deceased individual and distribute their assets to the designated beneficiaries. When a person dies, the custodian of their will must take this legal document to the probate court or the specific executor named in the will within 30 days after the testator has died.

The entire probate process is supervised by the court, and the authenticity of the deceased person’s will can be proved to be either valid or invalid (perhaps due to violation). If the will is valid, it will be accepted as the deceased individual’s true and last statement. The court will then appoint the executor designated in the will, and this will give him or her the legal power to act on behalf (fulfill the wishes) of the owner of the assets (deceased).

Appointing an executor

The executor or legal personal representative approved by the court will oversee all assets of the deceased person. The personal representative must estimate the estate’s total value using either the alternative valuation date or the date of death value. This process must adhere to the Internal Revenue Code.

Some of the properties that should be assessed during probate include stocks and bonds, retirement accounts, real estate, bank accounts, jewelry, and other valuable items. Many assets subject to the probate process come under the direct supervision of the probate court, where the deceased person stayed at the time of death. The only exception is real estate, which should be located in a specific state or country in which it’s located.

Additionally, the executor should pay off taxes and debts owed by the owner of the assets from the estate. In most cases, creditors have a limited period from the date they got notified about the debtor’s death to file claims against the testator’s estate for monetary resources owed to them. Some of these claims are valid while others are rejected, but only a probate judge can have the final say on the validity of a claim.

Lastly, the executor is responsible for filing the revenue tax returns on behalf of the property owner. Once the estate inventory has been taken, the total value of the property determined, and debts and estate taxes paid off, the executor must seek authorization from the court to distribute the remaining estate to the designated beneficiaries. Failure to plan for these issues correctly could result in high court costs after your death, particularly if your loved ones cannot agree on proper property distribution.

Estate Tax Planning

Federal and state tax applied on an estate can significantly lower its value before distributing property to the designated beneficiaries. Funeral-related expenses can result in considerable liabilities for the family, and this would necessitate generational transfer strategies that could minimize, eliminate, or postpone payment of tax.

During the estate planning process, there are essential steps that you must take to minimize the impact of the estate tax. These include:

  • Set up an AB trust that can divide into two in case of a spouse’s death.
  • Create education funding strategies, particularly funding your kids’ or grandkids’ education.
  • Work with a tax advisor to cut the impact of inheritance taxes through charitable contributions. The expert can also offer valuable tax advice besides the inheritance taxes information.
  • Lock in the current asset value and attribute the value of the asset’s future growth to another entity (your spouse, children, ex-spouse, grandchildren, or any other family member).

Life insurance and estate planning 

Generally, life insurance policies serve as an important source to pay funeral-related expenses, fund retirement plans, and fund business buy-sell contracts. Suppose the life insurance policy proceeds are sufficient and the policies are well-structured.

In that case, the income tax on the deemed dispositions of properties following the owner’s demise can be paid without selling the assets.

It’s also important to mention that the deceased’s heirs’ life insurance proceeds are not taxed.

Estate Planning Mistakes You Should Avoid

Avoid the following mistakes when creating your estate plan.

Failure to understand the plan:

Most people usually become passive in the presence of a professional estate planner or lawyer. They solely rely on the expert or lawyer to ensure that the entire plan is appropriately created. It’s recommended to comprehend the information contained in your plan. After all, a will and other components of the plan contain your credit cards loan information, email address, financial information, and how your assets should be distributed among your family members or beneficiaries in the event of your death.

Outdated beneficiary designation:

Keep in mind that the information contained in your will cannot affect certain estates. Such assets have separate beneficiary or heir designation forms, which determines who inherits them. Examples of such assets include annuities, retirement accounts, life insurance, and more. Failure to keep your beneficiary designations updated means that some of your assets would go to the people you designated at the time the estate plan was created.

Failure to update asset ownership:

Suppose you own some assets in your name and other properties in joint title with your adult child, spouse, or another entity. Some assets may be in trusts or partnerships. Just like your beneficiary designations, such information must be reviewed and updated regularly. It’s also essential to update simple information like your email address or email addresses of the asset owners.

Failing to fund revocable trusts:

Most estates include revocable trusts, also referred to as living trusts. Once these trusts are created, they must be funded. That means the legal title to estates should be transferred to the trust. Failure to do so means you will be wasting financial resources paying for the trust documents, and their estates will not avoid probate. Generally, failure to fund revocable trusts means you will not reap the benefits of living trusts.

Failure to update a power of attorney:

Your estate plan must include power of attorney. It is recommended to have two powers of attorneys. One for medical care and the other to have a financial power of attorney. Unfortunately, many people ignore these legal documents, and others rarely keep them up to date.

Failure to update the estate plan:

As mentioned earlier, some parts of your plan can become outdated. However, there are other essential components of an estate plan that must be updated regularly. That means you must contact a planner or lawyer whenever there is a significant change in your life like marriage, divorce, or birth to make the right changes in your estate plan. Don’t forget to update the ‘all rights reserved’ section.


Estate planning is an ongoing process, and you should start it as soon as you acquire a

measurable asset base. As your goals shift and life progresses, make sure you set up a meeting with your lawyer or expert to update your estate plan, right from the subject line to the last section, to align with your new goals. Keep in mind that improper planning can result in an

undue financial burden to your loved one, which is why you should take the estate planning documents or concept seriously.