What is Estate Planning? Should I Do Estate Planning?


We have all heard of estate planning, but many people believe that these practices are only for those with assets ranging in the millions. This is simply not so. Even if your assets are small, estate planning is a wise choice. Estate planning can be defined as the preparation of a plan of action to be taken for the proper administration and distribution of one's estate or property before or after death. This plan may or may not include wills, living wills, trusts, gifts, donations, and powers of appointment and attorney. This lesson will give you a basic understanding of what estate planning is. It outlines the essential tools of estate planning, each of which will be covered in greater detail in later lessons.

The Tools of Estate Planning

Estate planning is the process of preparing for the future disposal and distribution of an estate in a manner that will best achieve the goals of the estate owner and provide for those they care for. The main objectives of estate planning include making sure the greatest amount of the estate passes to the estate owner's intended beneficiaries, paying the least amount of taxes and completely avoiding or minimizing probate court involvement. Other objectives may include the following: providing financial support for minor children, designating guardians to care for minor children, planning for medical incapacity and setting up trusts. The most commonly used estate planning tools are given and defined in this section, however, not everyone chooses, or needs to use all of these tools. The basics of these tools are given here for your information. It is up to you to decide, with your loved ones and/or attorney or financial advisor, whether or not you will need them. These tools will be discussed in greater detail in later lessons. The seven essential tools of estate planning are the Will, the Living Will, the Advance Health Care Directive, trust(s), Beneficiary Designations, Powers of Appointment and Power of Attorney. These seven estate planning tools are each outlined below.

The Seven Most Used Estate Planning tools:

Will and Testament

The last will and testament is a document which instructs the actions or rights of others over property and/or dependents after death. The person for whom the will is being drawn is referred to as the "testator." Wills may be made without an attorney but must follow particular rules in order to avoid being declared void. All wills, whether drawn by a lawyer or the testator personally, must be signed and witnessed. Witnesses of a will should be "non-concerned" third persons. Two or more witnesses are required, two being the standard. For the witnesses to be considered "non-concerned," they should not include a spouse, dependant or anyone who are mentioned as beneficiaries in the will. They should also not be the spouses or children of those mentioned in the will. Using named beneficiaries, such as a spouse, son or daughter to witness one's will may result in invalidating it. Likewise, asking your son-in-law or daughter-in-law to be witnesses could void the will as well. A codicil is an amendment to a will that may be added any time after the initial drawing of the original. An executor (male) or executrix (female) may be decided upon and named within the will at the time of drawing, or this person may be assigned by a probate judge after the death of the testator. An executor or executrix is essentially the person in charge of carrying out the wishes and instructions of the will.

A basic will should contain the following five elements:

1. The publication of the will. (This usually includes the words "last will and testament," on the document and the name of the person drawing the will).

2. The declaration of revocation of all previous wills and/or codicils by the testator.

3. The declaration of sound mental capacity at the time of drawing and the assertion that the testator is drawing the will willingly and not under duress of any kind.

4. The signature of the testator (the writer of the will) at the end of the document, signed before two non-interested witnesses.

Interested in learning more? Why not take an online Estate Planning course?

5. The signature of the witnesses validating the drawing and signing of the will.

Living Will and Advance Health Care Directives

A living will and advance health care directive documents the testator's instructions and wishes in the event they are unable to voice medical decisions for themselves. This is often the case with terminal illness or sudden incapacity caused by an accident and/or head injury. Many feel strongly about not wanting to be kept on costly life support if there is no chance of recovery, others feel that this decision is something that should not be decided by people, and thus would prefer to be left on life support and cared for physically if in a coma. Whatever your personal decision may be in regard to these matters, a living will ensures that your beliefs will be carried out. If family members feel strongly about your decision, they may protest your will in court, but this is rare and usually only occurs with extenuating circumstances.

"Five Wishes" is a national healthcare directive created by Aging With Dignity, a non-profit organization. As of 2007 Five Wishes was valid in forty of the United States. In addition to American English, the document is also available in twenty other languages, including Spanish. Although Five Wishes was created by Aging With Dignity, the guide is for people of any age who desire an excellent advance health care directive at a reasonable cost. This document is applauded for addressing this topic in a humanistic manner. Five Wishes addresses the Medical, Personal, Emotional, and Spiritual aspects of the issue in an easy to understand, non-threatening manner.

Estate attorneys are also capable of creating Living Wills and advance health care directives. You can find estate attorneys in your local phone book, via word of mouth, or through your current attorney.


A trust is defined as an agreement wherein money or assets are held and managed by one person for the benefit of another person. Trusts are a popular and traditional estate planning tool. Trusts can be very complex and should be established by an attorney. They are often used to minimize estate taxes and maximize the total actual inheritance one or more beneficiaries receive.

A trust has several components, they are as follows:

  • A Trustor is the person providing the property or money to be placed in trust.
  • The Trustee is the individual or organization who manages, holds title and/or distributes the trust.
  • A Beneficiary is the person or entity who receives the benefits of the trust. In addition to being a single person, the beneficiary may be an organization or institution.
  • Trust Property is required to make the trust valid. Trust property may be any asset, including cash, bonds, property, etc.
  • A Trust Agreement is the formal contract between the trustor and trustee.

There are many types of trusts that fall under the categories of Living Trust and Testamentary Trust. Living trusts are established during the lifetime of the trustor while testamentary trusts are part of a last Will and are established after death. Lesson Seven covers the particulars of trusts in greater detail.

Beneficiary Designations

A beneficiary is the person or entity that receives the assets of a benefactor after the benefactor dies. There may be one, several or many beneficiaries named in estate planning documentation. A contingent beneficiary is a person, persons or entity named who is "second in line" after the original beneficiary. In other words, if the originally named beneficiary, for whatever reason, cannot receive the assets left for them, the contingent beneficiary will inherit the assets. An example of this would be if a benefactor desires that their assets are divided amongst their children equally. In the event one of those children pre-deceases the benefactor, their heirs (wife and children for example) can be named as contingent beneficiaries. If not clearly named the assets would be divided among the remaining children. The family of the deceased child could potentially receive nothing. It is very important that you choose and record your beneficiaries and contingent beneficiaries. Doing so will save time, expense and possibly financial hardship to your loved ones. Be sure that your beneficiaries are clearly named in all documents pertaining to your estate including all wills, trusts and insurance policies.

Powers of Appointment

General Power of Appointment

A general power of appointment gives one the power to distribute the designated assets of the deceased. If a benefactor grants their attorney a general power of appointment over their property, the attorney will then be able to distribute the property to anyone, including the donor and the donor's creditors. If the recipient of the power refuses to distribute the property, then the designated property will pass to the benefactor's residuary estate. This situation can be avoided by naming a secondary power of appointment.

Special Power of Appointment

A special power of appointment allows the designee to distribute specified property among a specified group. For example, a benefactor may grant his sister the special power to distribute property among his testator's four children. The sister would then have the authority to choose which of the testator's children gets which property. Unlike a general power of appointment, the refusal of the appointed party to exercise a specific power of appointment causes the property to revert as a gift to the members of the group. Thus, in the case of the example given, the children would have to decide on distribution themselves.

Powers of Attorney

Financial Power of Attorney

A financial power of attorney is also known as a "durable" power of attorney. This person may be a spouse, relative, companion, friend or attorney. It allows the named person power over your finances in the event you are unable to make financial decisions for yourself. It allows the named person to pay bills, sign checks and make financial decisions for you. If you have not selected a financial power of attorney and you become unable to make financial decisions or pay bills, a court hearing will be held to select one.

Medical Power of Attorney

A medical power of attorney has a very specific and specialized power granted to them. They are the designated person to whom you entrust medical decisions in the event that you are unable to make decisions yourself. The medical power of attorney will also be responsible for carrying out your previously written or verbal medical wishes and instructions. Be sure to speak to the person and be sure they are up to the task and willing before appointing them. This can be a very difficult decision and very difficult to discuss with friends and family. Lesson Eight covers the best way to discuss estate planning, including power of attorney appointments, with friends and family.


There are many excellent tools to help you set an estate plan in place that best works for you. You can certainly use these tools to create your own plan, however, if you have a great many assets, it is recommended that you use the information contained in this course to educate yourself about the many aspects of estate planning. You should also seek the guidance and advice of your family attorney, an estate attorney or an estate/financial planner as well. The tools in this lesson will be covered in greater depth in later lessons, however, those mentioned here are essential and will help you create a great basic plan. Please take the review self-test below to be sure you are comfortable with what you have learned thus far before moving on to lesson two.