As people age, their focus tends to shift from taking care of themselves to ensuring that their loved ones are cared for after they are gone. Estate planning encompasses both of these ideas. It is the process of organizing your assets so that your specific wishes are met if something happens to you. Good estate planning involves drafting a will, minimizing potential taxes, and setting up a contingency plan to make certain that your health care wishes are followed.

The term "estate" refers to all of the property that a person owns or controls. It includes:

• Real property and the things attached to it such as houses, buildings, barns, etc.
  
• All personal property (including automobiles, bank accounts, stocks and bonds, mutual funds, stock options, cash, furniture, jewelry, art, collectibles, etc.).
  
• All businesses (sole proprietorships, partnerships, corporations, joint ventures).
  
• All business interests (goodwill, inventory, tools, equipment, accounts receivable, and other business property, etc.).
  
• Powers of appointment, which is the right to direct who gets someone else's property.
  
• Life insurance and annuity contracts, pension benefits, IRAs, 403(b)s, etc.
  
• All debts and obligations owed to others.
  
• All claims the person has against others, such as for the pain and suffering from a motor vehicle accident.

A good estate plan coordinates what happens to these assets in the event you become disabled or die.

While estate planning certainly benefits people with large estates, it also benefits those with modest assets. Anyone who creates an estate plan ensures that their property will be distributed according to their personal wishes and that those who are benefiting from the estate receive the largest distribution possible with a minimum amount of delay. Distribution of the property that you own at death can be planned in advance through either a will or a trust. If you die without having a valid will or trust, then your assets are divided in a specific order among your relatives according to the law of intestacy.

Wills are the most common estate planning instruments. Each state has different rules as to what constitutes a valid will, but generally all wills have the same function of setting forth who inherits your property. Wills can have other purposes such as appointing a guardian for your minor children or specifying your funeral arrangements. All wills must pass through probate, which is a legal proceeding that reviews your will’s validity and distributes your property accordingly. Probate can be a lengthy and expensive process resulting in a delay in asset distribution as well as a reduction in inheritances.

Probate costs can be avoided by creating a trust. A trust is a legal arrangement in which a person gives fiduciary control of property to a trustee, who then distributes the property to beneficiaries according to certain terms. Trusts created by a will (as opposed to trusts created during a person’s life) transfer property to the trustee at the time of death, thus bypassing the probate process. Estate planning may also provide for a durable financial power of attorney, which appoints someone to handle your finances when you can no longer look after them yourself.

A good estate plan goes beyond financial issues and addresses personal ones by including directions to carry out your health care wishes. There are two kinds of health care directives that are often confused. A durable medical power of attorney gives someone you love the authority to make all medical decisions leading up to your death. In contrast, a living will sets forth your personal decisions regarding health care at the end of your life. Thus, a durable medical power of attorney does not give anyone the power to make end-of-life decisions for you.

The importance of estate planning cannot be overstated. Whatever your net worth, it is crucial to have a basic estate plan in place. The rules of estate planning are complex and can be difficult to understand. It is advisable to consult an attorney who can help you organize your assets and identify your goals.

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