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Estate Planning Law

Updated September 12, 2023
9 min read
Estate Planning Law; map, keys, ruler, scales, house

Estate planning law governs the process of arranging the administration or transfer of a person’s estate in anticipation of incapacitation or death. An estate plan comprises a collection of documents that includes a last will and testament, power of attorney, trust, and health care directives. Despite the importance of estate planning law in protecting family assets and the interests of dependents, a 2023 study found that only a third of Americans have an estate plan.

The following estate planning law guide highlights the basics you need to know, answering what is estate planning, who are the parties to an estate plan, what are the must-have documents, and a list of additional frequently asked questions. Depending on the size of a person’s estate, the estate planning law process can be daunting. If a person has assets in multiple states or other matters that complicate the process, that person may benefit from consulting with an estate planning law firm.

What Is Estate Planning?

Estate planning is making arrangements for how your assets should be handled in the event of your incapacitation or death. An estate plan can also involve documenting advance healthcare directives should you become ill and unable to express your wishes. While the subject of estate planning law seems to be more popular among wealthy people, anyone with assets should take the time to prepare an estate plan. This advance planning will help to ensure the smooth administration of assets, protecting the person’s wealth and the interests of the person’s loved ones.

Without clear directions, the administration of a person’s estate, its size notwithstanding, is left to the court’s discretion, which can inconvenience family members or slow down the inheritance process. While the court may strive to act in the best interests of the deceased person’s loved ones, its decisions might not necessarily reflect that person’s wishes, especially if there are minor children or dependents with special needs.

In addition, the process of estate planning law allows a person to employ various strategies to minimize the tax burden for beneficiaries who receive an inheritance. There are many benefits to planning your estate. You may be able to simplify this multi-step process by working with an estate planning lawyer. The estate planning law process may include the following steps:

  1. Taking inventory of assets (investments, retirement accounts, land, life insurance, cash, savings, cars, personal belongings, etc.);

  2. Listing debts;

  3. Assigning designations to financial accounts and life insurance policies;

  4. Drafting a will and other legal documents;

  5. Choosing beneficiaries; and

  6. Nominating a personal representative (executor).

Who Are the Parties?

When preparing an estate plan, the testator may enlist the help of professionals, such as an estate planning law firm, accountant, and financial advisor. However, the parties to the plan generally include:

  1. Testator — The owner of the assets who creates the estate plan;
  2. Beneficiary — An entity (individual person or institution) named to benefit from the estate; and
  3. Fiduciary — An individual or institution appointed by the testator to act on his or her behalf and manage the estate for the beneficiaries. Fiduciaries may include:

  • Guardian — A person appointed by the testator to look after and/or make decisions on behalf of a minor or an incapacitated individual;
  • Executor — A person appointed by the testator as a personal representative to administer his or her estate; and
  • Trustee — A person appointed by the testator to administer assets placed in a trust.

Estate Planning Law: Terms To Know

Common terms used in estate planning law include:

  1. Administration: The process of executing the estate, including initiating the probate process, identifying the properties, settling debts, and distributing assets to beneficiaries;
  2. Beneficiary: An entity (individual person or institution) named as a recipient of property from the estate;
  3. Codicil: A document that modifies an existing will;
  4. Executor: A personal representative appointed by the testator to administer the estate;
  5. Estate tax: Tax due on an estate before distribution;
  6. Inheritance tax: The tax beneficiaries pay upon receiving the inheritance;
  7. Joint tenancy: Co-ownership of property between two or more parties, used in estate planning law when the testator shares ownership of a property with another person(s);
  8. Probate: A court-supervised process that involves distributing assets to beneficiaries. The process is necessary even when the estate owner has a will;  
  9. Transfer on death: Also known as payable on death (POD), these accounts are those whose assets transfer directly to a named beneficiary after the death of the account holder without going through the probate process;
  10. HIPAA authorization: A document that the testator signs to authorize the release of medical records protected under HIPAA;
  11. Advance health directive: An estate planning law document that outlines a person’s preferences for medical decisions and/or appoints someone to make those decisions if the person becomes ill and unable to express those wishes; and
  12. Power of attorney: A document that grants an individual or institution the authority to act on a person’s behalf with estate planning law.

What Are Estate Planning Documents?

Estate planning law requires multiple documents to complete the process. These include a will, power of attorney, trust, list of digital assets, beneficiary designations, advance healthcare directives, a list of insurance policies & financial information, and others. 

Will

A last will and testament is a document that states how a person’s estate should be distributed upon his or her death. It details all assets and the recipient(s) of each. In addition to the beneficiaries, the will names the personal representative (executor) who should administer the estate. If there are minor children, the will should also feature a section appointing a guardian to look after them until they reach adulthood.

Upon the testator’s death, the executor files the will in court to initiate the probate process. The court then validates the will and issues a grant of probate to authorize its execution.

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Trust

A trust is an agreement between the grantor (estate owner) and a trustee. It authorizes the trustee to hold assets on behalf of the grantor for the interests of the beneficiaries. Trusts can be revocable or irrevocable. 

Revocable — The owner can change a revocable living trust whenever necessary. However, this privilege denies the owner federal tax benefits due to the ability to access the assets and reallocate them within the estate. This type of trust bears the same advantage as an irrevocable trust in that it allows the trustee to distribute the assets to the beneficiaries upon the owner’s death without going through the probate process.

Irrevocable — An irrevocable living trust does not allow the owner to make changes after the transfer of assets into the trust. As a result, it comes with estate tax benefits and exempts the assets from the probate process.

Durable power of attorney

A durable power of attorney is a document authorizing a person to make decisions on the signer’s behalf. These may include financial, legal, or medical decisions. Unlike a basic power of attorney, a durable power of attorney allows the appointed person to act on the signer’s behalf after his or her incapacitation.

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List of digital assets

This document is an important list of the testator’s digital assets with the login information. According to estate planning law, the testator may also nominate a digital executor to distribute these assets upon his or her death.

Beneficiary designations

In estate planning law, beneficiary designations are the named recipients of non-probate assets. These are assets that do not require probate to transfer to the beneficiaries. Examples include life insurance plans, pensions, and 401(k) accounts. Usually, testators do not include these assets in their will. Instead, the respective institutions have procedures for providing the name(s) of beneficiaries. Upon the account owner’s death, ownership of these assets automatically transfers to the designated beneficiaries as specified in estate planning law.

Advance health care directives

Advance health care directives pertain to the health care decisions that must be made for a person who has become incapacitated. These mainly comprise two documents:

  1. A living will to outline medical and end-life care preferences, such as life support; and

  2. A healthcare proxy with a durable power of attorney that authorizes someone to make medical decisions on a person’s behalf if he or she becomes incapacitated and unable to express his or her own desires.

List of insurance policies & financial information

This document is simply a list of all insurance policies and financial accounts (e.g., investments, bank accounts, retirement plans, mortgages, credit cards, etc.). In addition, the list should include access information for the documents prepared according to estate planning law. This information can be captured in an Excel sheet or notebook and stored with other estate planning law documents.

When Do You Need an Estate Planning Lawyer?

In most cases, working with an estate planning lawyer can help simplify the process. Unless all your assets are in beneficiary-designated accounts (e.g., life insurance policies and bank accounts), then you might want assistance from an estate planning law professional.

Generally, a person may want to contact an estate planning law firm for assistance:

  • To avoid a lengthy probate process;

  • To minimize estate tax;

  • To address out-of-state assets;

  • To benefit non-resident or foreign heirs;

  • To include succession planning for a business;

  • To protect the estate from the Medicaid recovery program due to long-term care;

  • To protect children or a family member with special needs;

  • To set up an irrevocable trust; and/or

  • To protect against state-levied inheritance tax and federal estate and gift taxes. 

Conclusion

Estate planning law empowers people to make comprehensive arrangements for how their estate should be managed or distributed should they become incapacitated or die. In addition, the estate planning law process can help reduce estate transfer taxes. One can employ multiple estate planning strategies to shorten the probate process, including transferring assets to beneficiary-designated accounts like bank accounts and life insurance policies. Putting assets in trusts, such as an irrevocable living trust, can allow beneficiaries to receive the inheritance directly upon the testator’s death without going through the probate process.

An estate plan comprises multiple documents, including a will, trust, durable power of attorney, list of digital assets, beneficiary designations, advance health care directives, and list of insurance policies & financial information. While estate planning law is crucial for everyone who owns assets, it can be complex, especially if you have assets in other states or want to set up an irrevocable trust. Unless you have all your assets in beneficiary-designated accounts, consider hiring an attorney from an estate planning law firm to guide you through the process.

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Frequently Asked Questions

What’s the difference between a will and an estate plan?

A will is part of a comprehensive estate plan. It details a person’s assets and how they should be distributed to named beneficiaries upon the person’s death. An estate plan includes the entire estate and any directives on how it should be managed or distributed if the person becomes incapacitated or dies. The estate plan consists of several documents, including a will, trust, durable power of attorney, list of digital assets, advance health care directives, and list of insurance policies & financial information.

What’s the difference between a living will and a power of attorney?

A living will is a document that outlines a testator’s medical and end-of-life care wishes regarding treatment options and life support. A power of attorney is a document that authorizes a person to act on behalf of another in financial, medical, or legal matters.

How often should I update my will?

You should update your will to capture any major life event, such as the birth of a child, death of a beneficiary, marriage, or divorce. However, even if none of these events happen, updating a will regularly — every three to five years — can help to ensure that it’s always current and compliant with estate planning law. 

Why should you create a complete estate plan?

A complete estate plan protects assets and beneficiaries in the event of a person’s incapacitation or sudden death. Without an estate plan, the court decides what should happen to your property, and the process can be lengthy, costly, and stressful for your loved ones. Estate planning also enables you to save on estate transfer taxes.

Overall, an estate plan:

  • Preserves family wealth;
  • Minimizes transfer taxes;
  • Prevents family inheritance battles; and
  • Protects minors and dependents with special needs.