Estate Planning 101

What Is Estate Planning?

Estate planning is the process of arranging and managing one’s assets during their lifetime to ensure efficient distribution upon death. Estate planning involves making decisions about how physical assets, such as property and personal possessions, and monetary assets like investments and bank accounts, will be transferred to heirs or beneficiaries. Key components of estate planning often include creating a will, establishing trusts, naming beneficiaries for life insurance policies and retirement accounts, and addressing potential tax implications.

Estate Planning 101

The purpose of this white paper is to provide you with an overview of estate planning basics and to provide a useful guide on what to expect when going through the estate planning creation or revision process.

Why Do I Need an Estate Plan?

Having an estate plan is crucial in order to minimize legal complications, minimize taxes and avoid family disputes while also ensuring that your wishes are carried out after passing.

What Is a Lifetime Plan?

Contrary to popular belief, estate planning involves more than just signing a Will. An estate plan involves both lifetime and testament planning. Lifetime planning includes choosing decision-makers who make health or financial decisions on your behalf should you become incapacitated. Lifetime planning may also include establishing tax-efficient gifting strategies.

What Is a Testamentary Plan?

A testamentary plan or trust designates the individuals or charities who will inherit your assets at death and in what capacity; for example: outright, or in a trust. Testamentary planning may also appoint a guardian who would care for your minor children, as well as an executor to administer your estate, and a trustee to oversee any trusts that may be created after your death. If you have a taxable estate, your testamentary plan will also include specific tax planning strategies you have in mind.

It is important for you to be in the driver’s seat with respect to these decisions. If you do not have an estate plan, the default provisions of state law will govern how your assets pass at death. The result may not be what you want.

What Documents Comprise an Estate Plan?

Each estate plan is personalized to your specific situation, so the exact paperwork that needs to be drafted and signed in order to implement your estate plan will differ.

Below is a list of basic documents that may have an impact on your estate plan:

If you own assets jointly with rights of survivorship, for example real estate or a brokerage account, those assets will pass directly to the surviving owner, regardless of declarations in your Will. Along with this, any retirement benefits or life insurance proceeds will pass to the beneficiaries named on the designation forms, regardless of what your Will states. Any individually owned assets not passing by law or beneficiary designation will pass according to the statements in your Will.

What Do Estate Documents Do?

An estate plan consists of many different estate documents, each of which will serve a slightly different purpose. An example of estate planning documents you can expect to need are:

  • Durable Power of Attorney (DPOA)
  • Health Care Proxy (HCP)
  • Living will
  • Beneficiary Designation or Joint Property
  • Will/Revocable Trust

What Is Durable Power of Attorney (DPOA)?

The DPOA appoints an agent to act on your behalf during your life. It allows the agent to act on a broad range of matters, including financial and real estate transactions. It is signed during life, becomes effective immediately and continues to remain in effect if you become incapacitated. A DPOA terminates on your death.

The DPOA appoints an agent to act on your behalf during your life. It allows the agent to act on a broad range of matters, including financial and real estate transactions. It is signed during life, becomes effective immediately and continues to remain in effect if you become incapacitated. A DPOA terminates on your death.

What Is Health Care Proxy (HCP)?

The HCP appoints an agent to make health care decisions for you if you are unable to do so. So long as you are not incapacitated, you make your own health- related decisions.

What Is a Living Will?

A Living Will provides written instructions on your wishes in the event of incapacity. For example, the Living Will would indicate whether you would want to forgo life-sustaining treatment in the event you had an incurable or irreversible condition that rendered you incapacitated.

What Is a Beneficiary Designation or Joint Property?

A beneficiary designation for “non-probate” property – such as an IRA or life insurance policy – provides instruction as to who will receive the property remaining at your death. These types of assets are “non-probate” property because they pass outside of your Will and are not impacted by the terms of your Will. As mentioned above, at your death, the property passes automatically to the named beneficiary. Additionally, if you own property – such as real estate or brokerage accounts – jointly with another individual, the remaining assets will pass automatically to the surviving joint owner at your death.

What Is a Will/Revocable Trust?

A Will decides the terms under which your assets – those that are not already designated by a beneficiary or by law – will be distributed upon your passing. A Will also specifies who you would like to serve as a guardian of any minor children, and who will serve as the executor of your estate. Generally, a Will is designed to give your tangible possessions to specific individuals, and the remainder of your estate is passed on to individuals or your revocable trust.

A Will can also create a trust at the time of your death, this is called a “Testamentary Trust”, and your Will also names an individual to serve as a trustee of that trust. Trusts created in your Will do not come into existence until your death.

A Revocable Trust is a separate document that functions like a Will. If you decide to create a revocable trust, your Will would state that your estate pours over into a revocable trust at your death and is governed by the terms contained in the revocable trust. A Will/revocable trust structure does not have any tax advantages but can offer some distinct advantages in asset management during a time of incapacity and in trust and estate administration after death. A detailed discussion on Revocable Trusts is beyond the scope of this White Paper. For more information on Revocable Trusts, see our other White Paper: Revocable Trusts.

What Is an Example of How a Will Works?

Judy is a widow with two children – Nate and Sara. Sara has two children of her own – Olivia and Kate. Judy’s Will names Nate and Sara as equal beneficiaries of her estate, and as co-Executors. Judy’s estate is worth $3,500,000 and is broken up into the following assets:

  • Two bank accounts. One account is owned individually by Judy and has a value of $500,000. The other account is owned jointly with Nate (with rights of survivorship) and has a value of $250,000.
  • $2,000,000 life insurance policy where Judy’s two grandchildren are named as equal beneficiaries.
  • A home in Westchester worth $750,000, with Judy as the sole owner.

To determine who gets what if Judy passes, you should first determine what passes under the Will and what passes outside of the Will. The joint bank account with Nate passes directly to Nate at Judy’s death because he is a surviving joint owner. In addition, the life insurance proceeds pass directly to Judy’s granddaughters because they are the named beneficiaries. The only assets to pass under Judy’s Will are her individually owned bank account and her home in Westchester.

In the end, Nate receives $500,000 (he receives the $250,000 jointly owned account, plus half of the $500,000 individually owned account) and half an interest in the home, while Sara receives $250,000 and half an interest in the home. If Nate and Sara decide to sell the home, then they would split the proceeds from the sale. Judy’s two granddaughters each receive $1,000,000.

To better ensure this is how Judy intends her assets be divided, we can ask ourselves a few questions:

  • Does Judy intend for Nate to receive twice as much as Sara? Was the joint account set up for convenience, and unknowingly going to leave more to the child who was listed as the joint owner?
  • Are there any issues with her granddaughters receiving $1,000,000 of cash outright from the life insurance? Would the amounts have been better left to trusts for their benefits? 
    • One benefit of a trust is that it can provide a level of asset protection. This is especially important if one of the granddaughters was in the midst of a divorce or has creditor issues.
    • Another benefit is that a trust can allow a trustee to handle investment management of the funds if the granddaughters are too young or not financially sophisticated.
    • If one of her granddaughters had special needs (medical or otherwise), a trust may very well have been a better option than an outright gift, for more asset protection and to maintain eligibility for government benefits.
  • Do Nate and Sara get along well? If not, they will need to think about how to best administer Judy’s estate since they are named as co-Executors.
    • An option would be to have one of them resign.
    • What if Sara wants to keep the house but Nate is adamant that they sell it because he needs the cash? Sara could conceivably buy him out, but could there be practical hurdles if they don’t get along?

Believe it or not, the above example is fairly simple. But even seemingly simple life situations can raise more complicated estate planning questions. Hopefully, Judy would have taken the above considerations into account when crafting her estate plan. In addition, it would have been a good idea for Judy to regularly revisit her plan to ensure that it continued to reflect her current wishes.

Questions To Ask To Establish an Estate Plan

While creating and revising an estate plan is specific to your personal needs, here are some basic questions to consider.

  • If I become ill, who should make health care or financial decisions on my behalf?
  • Who would I like to name as executor, trustee or guardian, if applicable?
  • Who should inherit my assets at my death?
  • Who should inherit my assets at the death of the primary beneficiary, or if the primary beneficiary dies before me?
  • Should any of my assets pass to trusts for the benefit of individuals, rather than outright?
  • Would I like to incorporate charitable giving into my estate planning?

How Do I Create or Update My Estate Plan?

In most cases, you will need to find a qualified estate planning attorney to draft or update your estate planning documents. You can find an attorney by seeking recommendations from your friends and family or from your trusted advisors, such as your financial advisor or accountant. Once you find an estate planning attorney, it will be helpful to prepare in advance of your first meeting by collecting copies of your current documents and taking time to consider the questions listed above. For a discussion of how to prepare for your first meeting, see Preparing to Meet with Your Estate Planning Attorney.

Lastly, remember that while it is important to have an estate plan in place, it is equally important to regularly revisit your plan to ensure it continues to reflect your wishes. We recommend that you revisit your estate plan whenever there is a change in your circumstances or the circumstances of a loved one. Some examples include marriage, divorce, birth, death, a change in personal finances or health, and moving to another state. Even if there have been no major changes in your life, it is best to revisit your plan every three to five years to ensure that it is in line with current law and still accurately reflects your wishes. For a more detailed discussion on what to consider when updating your estate plan, see Estate Plan Checkup Checklist.

Wealthspire Advisors LLC is a registered investment adviser and subsidiary company of NFP Corp.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2024 Wealthspire Advisors

Rich Yam

About Richard Yam, J.D.

Rich serves as Senior Vice President, Director of Wealth Strategy – Wealth & Tax Planning, and is based in our New York office.

View all posts by

Related Posts

new york estate tax cliff

Understanding New York’s Estate Tax “Cliff” – 2024 Update

In 2014, dramatic changes were made to New York’s gift and estate tax law. For many clients, the subject of ...

A Guide to Qualified Personal Residence Trusts (QPRTs)

What is a Qualified Personal Residence Trust? A Qualified Personal Residence Trust (“QPRT”) is an irrevocable trust that holds either ...


What is Probate? Probate is the court proceeding in which a deceased person’s Will is filed with the court, and ...