What is an estate plan?

Why is estate planning important?

Talking to your family about what may happen after you pass away can be a difficult discussion. However, it is an important one. Creating an estate plan now plays a crucial role in providing peace of mind and can help ensure that your assets will be distributed according to your wishes.

 More importantly, a comprehensive estate plan addresses both financial matters and healthcare decisions, to help make sure that your preferences are respected if you become unable to make such choices yourself.

Definition of an estate plan

Every estate plan is unique. Some are quite simple, while others can include pages upon pages of legal documents. At its core, an estate plan is a set of arrangements, including legal documents, that outline how your financial affairs should be managed after you pass away or become incapacitated.

Benefits of estate planning 

Estate planning is not just for the wealthy. When set up properly, an estate plan ensures that your family is taken care of during a challenging time, and enables you to: 

• Minimize estate taxes

• Avoid lengthy and costly probate processes

• Prevent family misunderstandings or disputes

• Safeguard minor children and dependents

• Provide end-of-life healthcare guidance 

• Create a legacy through charitable gifting

Who is involved with executing an estate plan?

There are generally four parties that play a part in every estate plan: 

• Testator/Grantor: The owner of the assets who creates the estate plan, potentially including a will and trusts. 

• Beneficiaries: The individuals, organizations, or trusts that will receive your assets upon your death. 

• Executor: The person you appoint to manage the estate settlement process. This role carries significant responsibilities, including a fiduciary duty to the beneficiaries.

• Probate court: A division of the judicial system that oversees the execution of wills and estates. Most wills must go through probate, which includes verifying the will and settling debts before the remaining assets are distributed. By using trusts in your estate plan, you may be able to skip probate entirely.

Key elements of an estate plan

There are likely to be at least a few legal documents as part of your estate plan. They are the mechanism ensuring that your wishes are honored.  

Wills

Most people have a will, which stipulates how your assets should be distributed upon your death. However, only having a will may not be enough. They can lack important details and don’t offer some important capabilities that trusts can provide. 

Trusts

Trusts are legal arrangements that give you more control than wills in how and when to distribute your assets. They can help a family avoid probate, distribute wealth over time, minimize taxes, and much more. For these reasons, many estate plans include trusts. There are a few different types of trusts, each serving specific goals and using them together is usually the best way to ensure that your wishes are executed as you intend. 

Power of attorney

Power of attorney is a legal document that appoints someone to make important decisions if you become incapacitated. Choose someone you trust, as this role comes with significant responsibility. If choosing a family member, consider potential conflicts if they are also a beneficiary. For larger or more complex estate plans, it can be beneficial for your agent to have a legal background. You should also consult with your legal advisor for guidance*.

Healthcare directives

Many people assume their loved ones know their medical preferences, but that isn’t always the case. This can also lead to your family agonizing over very difficult decisions. A healthcare directive alleviates this burden by outlining your treatment wishes in case you can’t communicate them yourself. 

Estate planning process

The estate planning process can be tailored to your situation and be as simple or complex as you like. If your wishes are fairly straightforward and your total assets are under the lifetime gift/estate tax exemption of $13.99 million¹ for 2025, your planning process could be relatively straightforward. However, if you have multiple beneficiaries, substantial assets, or wish to donate some of your wealth to charity, consider working with a financial professional and attorney who understand the intricate legal documents and how they work together. This can save you time and heartache, while ensuring that you avoid potential issues down the line. Either way, here are the steps you will follow when creating your estate plan: 

Step 1: Take inventory of your assets and debts

To make certain your assets are distributed according to your wishes, you and your executor should have a comprehensive list of everything you own. Some assets are obvious, like the tangible assets you own. That includes real estate, vehicles, collectibles, and other personal possessions. Others may require more information, such as intangible assets like any checking or savings accounts, investments in stocks or mutual funds, or ownership in a business. Also remember to include accounts such as 401(k)s, life insurance, and annuities. You’ll likely also want to list digital assets and accounts along with the passwords required to access them.  

Most debts do not transfer when you die, but are typically paid from your estate before assets are distributed. For that reason, be sure to include any liabilities in this accounting, including outstanding mortgages, lines of credit, and any other debt.

Step 2: Identify your beneficiaries

Once you have a clear understanding of all of your assets, it’s time to decide how you would like to distribute them. You may have one beneficiary or many. You may wish for an equal split among heirs or to allocate assets based on need. Additionally, there may be specific items you want to give to certain people. Be sure to clearly outline all of this in your will. It’s your decision, but whatever you choose needs to be clearly defined and backed by legal documents. That is the next step. 

Step 3: Create necessary documents

Once you have your list of beneficiaries and a plan for how to distribute your wealth, it’s time to get that into writing. That means legal documents. Almost all estate plans include a will, but there are other documents to consider, such as trusts, power of attorney, and advanced-care directives. In addition, many assets like life insurance policies pass by contract, which means the beneficiary should listed in that specific document. Joint ownership of property can also complicate the process. Consulting with an estate planning attorney is the best way to ensure that your documents are well-prepared and comprehensive. 

Step 4: Appoint an executor

An executor is the person, or sometimes an institution, you appoint to carry out the instructions in your estate plan. This role requires trust, organizational skills, and patience, as the executor will be responsible for settling your estate. Their duties may include paying debts, distributing assets to beneficiaries, and ensuring that all legal obligations are met. Therefore, this should not only be someone you trust, but someone capable of handling complex administrative tasks and communicating effectively with your beneficiaries and other stakeholders. Once these steps have been taken, it’s also important to update your estate plan at regular intervals throughout your life to account for changes in finances and family situation.

Estate plan FAQs

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¹“Estate Tax,” IRS.gov, Oct 2024. 

*Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.