Guides / Life Events / Planning Your Estate

Estate Planning: How To Get Started

A good estate plan does three things: it puts your property in the hands of the people you actually want to receive it, keeps the process orderly for the people left to handle it, and limits what gets lost to taxes along the way.

The Overall Picture

Your "estate" is everything you own at death, minus your debts, though a few technical rules can pull assets back into the estate that you thought you had already given away. The good news is that most estates never owe federal estate tax. A surviving spouse can generally inherit an unlimited amount free of federal estate tax through the marital deduction, and beyond that, federal law exempts a substantial amount per individual before the tax applies at all. That exemption amount changes periodically as tax law changes, so it is worth confirming the current figure with your tax advisor rather than assuming last year's number still applies.

State death taxes are a separate matter. About a dozen states plus the District of Columbia impose their own estate tax, and a handful of others impose an inheritance tax instead, with rules and thresholds that vary widely and often sit well below the federal exemption. Where you live, and where you own property, both matter.

Gifting is part of the same picture. Each year you can give a set amount per recipient free of federal gift tax, and lifetime gifts above that annual amount count against a separate lifetime exemption. Assets you inherit typically receive a stepped-up tax basis equal to their fair market value on the date of death, which is one of the more valuable, and more frequently misunderstood, features of the current system.

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Wills

A will is the foundation of an estate plan, and it is worth having a qualified attorney draft or review it rather than relying on a generic template. A poorly drafted will can create exactly the kind of confusion and cost it was supposed to prevent.

There are five main reasons to have one:

Choosing your beneficiaries. Without a will, state law decides who inherits your property, and the default formula may not match what you actually want.

Minimizing taxes. Life insurance proceeds, retirement plan balances, and IRAs typically pass outside a will, but they still count toward your taxable estate. A will is part of a coordinated plan to manage that exposure.

Naming a guardian. If you have minor children, your will is where you name who should raise them if something happens to both parents.

Naming an executor. Without this, a court appoints someone to administer your estate, and it may not be the person you would have chosen.

Establishing domicile. If you split time between states or own property in more than one, a will can help make clear which state is your legal home, reducing the risk of competing tax claims.

Keep original copies of your will out of a safe deposit box, which can be sealed at death and delay access. A fireproof safe at home, with copies held by your attorney and executor, is the more practical approach. Revisit the document every two to three years, and sooner after a divorce, a birth, a major purchase or sale, or a change in tax law.

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Trusts

Trusts are no longer just a tool for large estates. A trust is a separate legal arrangement that holds title to property on behalf of beneficiaries, managed by a trustee according to terms you set. An irrevocable trust is a distinct taxpayer that cannot be changed once established; a revocable trust can be altered or undone by its creator and is generally not treated as a separate taxpayer.

Common uses include transferring property to children in stages rather than outright, sheltering part of an estate from tax through a credit shelter or bypass trust, providing for a surviving spouse through a marital deduction trust while still preserving assets for other heirs, and holding life insurance intended to fund future estate tax payments.

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Other Essential Tools

Beyond a will and any trusts, a handful of supporting documents round out a complete plan.

The postmortem letter. This is a simple, non-legal document that tells your executor and survivors where to find everything: records, account numbers, professional contacts, and instructions that do not belong in a will but still need to be known quickly after death.

Living wills. Sometimes called a health care proxy, this document states your wishes about medical treatment if you become unable to make decisions yourself, sparing your family from having to guess.

Life insurance. Beyond providing for survivors, life insurance can fund estate tax payments or a business buy-out. Whether the proceeds are included in your taxable estate generally depends on whether you personally owned the policy at death.

Disclaimers. An heir can decline all or part of an inheritance, passing it to the next beneficiary in line. Used deliberately, this can shift income and reduce estate tax within a family.

Lifetime gifts. Annual gifts within the gift tax exclusion reduce the size of your taxable estate over time while giving you the benefit of seeing your gifts put to use.

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Estate and Gift Taxes

Estate and gift tax rules change more often than most people expect, and exemption amounts are scheduled to shift in the coming years as prior tax legislation phases out. A plan that works well today may need adjusting in a few years purely because the numbers changed, not because your wishes did. This is one of the better reasons to review your estate plan periodically with both your attorney and your tax advisor, rather than treating it as a one-time project.

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Frequently asked questions

Do I need a will if my estate is small?

Yes. A will controls who inherits your property and who raises your minor children regardless of estate size, and dying without one means state law makes those decisions for you.

What is the difference between a will and a living will?

A will controls how your property is distributed after death. A living will states your wishes for medical treatment while you are alive but unable to communicate them yourself.

Where should I keep my will?

In a fireproof safe at home or with your attorney, with copies given to your executor. Avoid safe deposit boxes, which can be sealed and difficult to access immediately after death.

What is a postmortem letter and do I need one?

It is an informal document listing the location of your records, accounts, and key contacts for your executor. It is optional but can prevent significant delays and lost assets.

This guide is for general informational purposes only and is not tax, legal, financial, or investment advice. Every business situation is different, so consult a licensed professional before making decisions based on this content.