what is estate planning 
estate planning refers to the preparation of tasks that manage an individual s financial situation in the event of their incapacitation or death this planning includes the bequest of assets to heirs and the settlement of estate taxes and debts along with other considerations like the guardianship of minor children and pets most estate plans are set up with the help of an attorney experienced in estate law some of the steps include listing assets and debts reviewing accounts and writing a will the estate planning processestate planning involves determining how an individual s assets will be preserved managed and distributed after death it also takes into account the management of an individual s properties and financial obligations in the event that they become incapacitated assets that could make up an estate include houses vehicles stocks art collectibles life insurance pensions debt and more contrary to what you might think this isn t a tool meant just for the ultra wealthy anyone can and should consider estate planning there are various reasons why you might begin estate planning such as preserving family wealth providing for a surviving spouse and children funding children s or grandchildren s education and leaving your legacy for a charitable cause writing a will is one of the most important steps but there s so much more to do other major estate planning tasks include the following the following table serves as a checklist when it comes to planning your estate writing a willa will is a legal document that provides instructions about how an individual s property and custody of minor children if any should be handled after death the individual expresses their wishes and names a trustee or executor that they trust to fulfill their stated intentions the will also indicates whether a trust should be created after death depending on the estate owner s intentions a trust can go into effect during their lifetime through a living trust or with a testamentary trust after their death 1the authenticity of a will is determined through a legal process known as probate probate is the first step taken in administering the estate of a deceased person and distributing assets to the beneficiaries when an individual dies the custodian of the will must take the will to the probate court or to the executor named in the will typically within 10 to 30 days of the death of the individual who is also called a testator 2the probate process is a court supervised procedure in which the authenticity of the will left behind is proved to be valid and accepted as the true last testament of the deceased 3 the court officially appoints the executor named in the will which in turn gives the executor the legal power to act on behalf of the deceased 45estate planning is an action plan you can use to determine what happens to your assets and obligations while you re alive and after you die a will on the other hand is a legal document that outlines how assets are distributed who takes care of children and pets and any other wishes after you die appointing the right executorthe legal personal representative or executor approved by the court is responsible for resolving the financial affairs of the deceased 4 including locating and overseeing all assets the executor has to estimate the value of the estate by using either the date of death value or the alternative valuation date as provided in the internal revenue code irc 67assets that need to be assessed during probate include most assets that are subject to probate administration come under the supervision of the probate court in the place where the decedent lived at death the exception is real estate which may need to be probated in the county in which it is located 8the executor also has to pay off any taxes and debt owed by the deceased from the estate creditors usually have a limited amount of time from the date they were notified of the testator s death to make claims against the estate for money owed to them 9 claims that are rejected by the executor can be taken to court where a probate judge will have the final say as to whether or not the claim is valid the executor is also responsible for filing the final personal income tax returns on behalf of the deceased 10 after the inventory of the estate has been taken the value of assets calculated and taxes and debt paid off the executor will then seek authorization from the court to distribute whatever is left of the estate to the beneficiaries 3any estate taxes that are pending will come due within nine months of the date of death 10planning for estate taxesfederal and state taxes applied to an estate can reduce its value considerably before assets are distributed to beneficiaries death can result in large liabilities for the family necessitating generational transfer strategies that can reduce eliminate or postpone tax payments there are significant steps in the estate planning process that individuals and married couples can take to reduce the impact of these taxes married couples for example can set up an a b trust that divides into two after the death of the first spouse trust a is the survivor s trust while trust b becomes the decedent s trust typically for the beneficiaries such as the couple s children each individual places their assets in the trust and names someone other than their spouse as the beneficiary 11 however a b trusts have become less popular as the estate tax exemption works well for most estates grandparents may transfer assets to an entity such as a 529 plan to support grandchildrens education 1213that may be a more tax efficient move than having those assets transferred after death to fund college or other schooling when the beneficiaries are of age the latter may trigger multiple tax events that can limit the amount of funding available to grandchildren another strategy an estate planner can take to minimize the estate s tax liability after death is giving to charitable organizations while alive the gifts reduce the financial size of the estate since they are excluded from the taxable estate thus lowering the estate tax bill 14as a result the individual has a lower effective cost of giving which provides additional incentive to make those gifts estate planners can work with the donor in order to reduce taxable income as a result of those contributions or formulate strategies that maximize the effect of those donations 1514this is another strategy that can be used to limit death taxes it involves an individual locking in the current value and thus tax liability of their property while attributing the value of future growth of that capital to another person any increase that occurs in the value of the assets in the future is transferred to the benefit of another person such as a spouse child or grandchild 16this method involves freezing the value of an asset at its value on the date of transfer accordingly the amount of potential capital gain at death is also frozen allowing the estate planner to estimate their potential tax liability upon death and better plan for the payment of income taxes 1718using life insurance in estate planninglife insurance serves as a source to pay death taxes and expenses fund business buy sell agreements and fund retirement plans if sufficient insurance proceeds are available and the policies are properly structured any income tax on the deemed dispositions of assets following the death of an individual can be paid without resorting to the sale of assets proceeds from life insurance that are received by the beneficiaries upon the death of the insured are generally income tax free 19