What Is Estate Planning?

July 9th, 2025

Estate planning is the process of deciding and documenting what will happen to your assets after you die. Although many of us don’t realize it, an “estate” isn’t something that only the wealthy have. Quite the contrary. Even people of modest means own homes, cars, real estate and other property. They have bank accounts, investment accounts and personal possessions such as jewelry, art, coin collections, furnishings and such. These days, almost everyone also has digital assets, which Nolo defines as “any ‘electronic record’ that you own, license or control.” This includes virtually everything that you store or access online, including the following:

• Cloud storage (photos, music, online files)
• Social media accounts
• Websites and blogs
• Email accounts
• Marketplace accounts 
• Bitcoin

While many of these things have no monetary value, they are nevertheless part of the estate that you will leave behind when you die. 

In legal terms, an estate is “everything comprising the net worth of an individual, including all land and real estate, possessions, financial securities, cash and other assets that the individual owns or has a controlling interest in,” Investopedia explains. However, in the real world, even items with no or very little monetary value can be an important asset if they have sentimental value to people you love. That’s one reason why it’s very important to document in a legally drafted will how you want your possessions distributed among your beneficiaries after you die. 

Jump Ahead to

• Why Estate Planning Is Important
• Do You Need an Estate Planning Attorney?
• Creating a Will
• How to Write a Will
• Designating Beneficiaries
• What Is a Trust?
• Conclusion

Why Estate Planning Is Important

In addition to helping you decide and document what will happen to your assets when you die, estate planning offers individuals an opportunity to put together a comprehensive end-of-life plan. This includes not just creating a will, but also designating a property power of attorney to manage your assets should you become ill or incapacitated. You can also designate a healthcare power of attorney (also known as a healthcare proxy or healthcare surrogate) to make decisions about your medical care if you are unable to make them yourself. If you do not already have one, estate planning can also afford the opportunity to create an advance healthcare directive or living will, which is a document that outlines the care you do and do not wish to receive should you become incapacitated by illness and cannot speak for yourself. 

Another important goal of estate planning is to minimize the tax burden on your estate. Federal estate tax is levied only on assets that exceed a certain threshold. As of 2024, that amount is $13.61 million per individual ($27.22 million for a married couple) and includes all assets you own, including:

• Real property
• Stocks, bonds and mutual funds
• Personal retirement accounts such as a 401(k)
• Health savings accounts
• Personal property, including cars, boats and other vehicles, clothing, jewelry, household furnishings, etc. 
• Checking and savings accounts and certificates of deposit
• Ownership in a business

Additionally, some states impose an estate tax on estates valued over a specific dollar amount. As of this writing, these include: 

• Washington
• Oregon
• Minnesota
• Illinois
• Vermont
• Maine 
• Rhode Island
• Connecticut 
• New York
• Maryland
• District of Columbia

Tax rates and exclusions vary considerably between states, so check with an estate planning professional if you live in one of these states. 

By taking inventory of your assets, you can determine if you need to decrease your net worth now in order to avoid paying estate taxes when you die.You can accomplish this in a number of ways, including giving some assets to a charitable organization, or setting up an irrevocable trust. You can also gift some assets to your children or loved ones. Just make sure the amount is under the current gift-tax threshold, which is $18,000 per individual in 2024. You can also shield some assets through political contributions or paying qualified medical or educational expenses directly to a provider. 

Do You Need an Estate Planning Attorney?

Because estate planning can be complicated, it is always wise to consult a professional to help you devise an estate plan that makes the most sense for you and your family. This can be an attorney, a CPA or a financial advisor. What’s most crucial is that you hire someone who has expertise and experience in tax law, including federal and state statutes, IRS rulings and recent opinions handed down by the courts. Generally, this means that the person should have specific credentials in addition to a law or accounting degree. According to Investopedia, this may include the following designations: 

• Chartered trust and estate planner (CTEP)

A designation awarded by the Global Academy of Finance and Management, a CTEP is a financial advisor, usually for high-net-worth clients, who holds an undergraduate degree in finance, tax, accounting or financial services or an advanced degree in a related field (e.g. MS, MBA, JD) from an accredited school. They must also have a minimum of three years of experience in estate planning or trusts and be certified in at least one area of estate planning.

• Accredited estate planner (AEP)

Awarded by the National Association of Estate Planners & Councils, the designation of AEP requires that an individual have the following credentials:. 

• A law or CPA license or 
• Designated as a chartered life underwriter (CLU), chartered financial consultant (ChFC), certified financial planner (CFP), or certified trust and fiduciary advisor (CTFA)
• A minimum of five years of experience in estate planning 
• A minimum of 30 hours of continuing education during the previous 24 months, of which at least 15 hours must have been in estate planning

Additionally, professionals with less than 15 years experience in estate planning must have completed at least two graduate level courses through The American College of Financial Services.

• Certified Trust and Fiduciary (CTFA)

Also known as certified trust and financial advisor, a CFTA certification is awarded by the American Bankers Association and requires:

• At least three years experience in wealth management 
• Completion of an approved wealth management training program
• Successful completion of a certification exam and submission of an ethics statement 
• 45 hours of continuing education credit every three years.

Choosing an estate planner with one or more of these designations, helps to ensure that you receive the best, most up-to-date information and advice about planning your estate. 

Creating a Will

A will is a legal document that outlines your wishes regarding the distribution of your assets and the care of your dependents after you die. Also called a “last will and testament,” a will serves several key functions:

• It names the beneficiaries you wish to inherit your property after your death
• It names an executor — the person who will administer your estate 
• It designates guardians for your minor children and their property
• It designates a guardian for any other dependents (for example, an elderly parent)
• It provides for the care of pets

Notably, there are also a number of functions a will is not intended to fulfill. According to Nolo,  a will cannot be used to do the following:

• Transfer property that you own in joint tenancy with someone else or in “tenancy by the entirety” or “community property with right of survivorship” with a spouse
• Transfer property you have placed in a living trust 
• Bequeath the proceeds of a life insurance policy for which you have already named a beneficiary
• Bequeath money in a retirement plan such as an IRA or 401K if you named a beneficiary on paperwork filed with the account administrator 
• Transfer property held in beneficiary (transfer-on-death or TOD) form. This may include stocks, bonds, and — in some states — real estate or vehicles. These assets will automatically be transferred to the named beneficiary upon your death. 
• Bequeath money in a payable-on-death bank account

Additionally, a will cannot be used to leave a bequest that is contingent on the recipient getting married, divorced or changing their religious affiliation. Nor, despite what you may have read about the bequests of certain Hollywood celebrities, is it possible to leave money to your beloved pet in your will. Pets can’t own property, so doing so can create legal problems for your other beneficiaries. It’s a better idea to leave your pet to someone you trust and leave that person some money to care for the animal after you’re gone. 

Having a will is important for almost everyone and should be a priority for anyone of legal age (18 in most U.S. states.) Even if you don’t have many assets, a will relieves your surviving loved ones of the responsibility of trying to sort through and distribute your possessions after you die. Further, if you die without a will and you have cash assets, investment accounts or a substantial amount of property, these assets will be distributed according to the “intestate succession” laws of the state where you resided at the time of your death. Based on the 1990 Uniform Probate Code, these laws are designed to closely resemble how the state believes most people would want their assets distributed. Obviously, however, they may not reflect the actual wishes of the person who died. 

How to Write a Will

A will is the cornerstone of estate planning, so it is imperative that it is created in a way that is legally binding in your state. The surest and most “hassle-free” way to accomplish this is to hire a professional such as an attorney or CPA who specializes in estate planning. These professionals can not only help you draft your will but can also advise you on other issues, such as:

• Setting up a living trust
• Mitigating or avoiding estate taxes
• Protecting your assets from your beneficiaries’ creditors 
• Naming a durable power of attorney who will manage your financial affairs should you become incapacitated before your death

With that said, it is not absolutely necessary to hire a professional to help you draft your will, especially if you have a fairly simple estate (for example, all assets go to the surviving spouse). Some states, including California, Maine, Michigan, New Mexico and Wisconsin, offer “statutory will forms” created by the state legislature. These forms are easily accessible online and simple to use. You simply print out the form, fill in the blanks and execute the will in accordance with state law. 

Another source of form wills and other estate planning tools are “legal advice” websites such as Findlaw, Nolo, Legal Zoom, and LawDepot. These “will kits” are typically accompanied by detailed instructions and priced between $90 and $200, depending on the complexity of your estate and the type of instruments you want to create. 

Be aware, too, that there are some circumstances under which you should not draft your own will. According to AARP, these include the following situations:

• You have a large estate and/or multiple beneficiaries
• You want to disinherit a spouse
• You are concerned that someone may contest your will, claiming that you were not of sound mind or unduly influenced when you created it
  

In these circumstances, you should probably hire an estate planning professional to help draft your will. 

After you write your will, you will need to sign it in the presence of adult witnesses (usually two). Although the will itself does not need to be notarized in most states, it should be accompanied by a notarized statement known as a “self-proving affidavit” — a statement signed by your witnesses in which they swear that they saw you sign the will and that you appeared to have the mental capacity to execute it. This document, while not strictly necessary, will simplify the process of getting your will through probate after your death. (Note: Self-proving affidavits are unnecessary in California, Illinois, Indiana, Maryland and Nevada and not accepted in Ohio and the District of Columbia.)

Designating Beneficiaries

In addition to persons you designate in your will as heirs to certain parts of your estate, it is important to designate beneficiaries on all of your insurance policies and financial accounts. This typically includes life insurance policies and individual retirement accounts. It’s not unusual that these beneficiary designations fail to reflect an individual’s current life circumstances. For instance, the beneficiary on a life insurance policy purchased many years ago may still indicate that the beneficiary is an ex-spouse or a person who has since died. For this reason, it’s important to update the beneficiaries on your insurance policies and financial accounts at least 10 years and whenever you have a significant life event.  

Remember, too, that your life insurance needs may change with time. A $50,000 policy may have been adequate to provide for your spouse’s needs when you were childless and both of you were employed. But it might be completely inadequate to provide for two children and your spouse should you die while the children are still young. When considering how much insurance you will need, it’s important to take into account your family’s:

• Day to day living expenses
• Mortgage payment or rent
• Debts and other financial obligations
• Children’s educational needs

It is also important to factor in the cost of your funeral and burial. 

What Is a Trust?

According to Fidelity, a trust is a fiduciary arrangement that allows a third party (a trustee) to hold assets on behalf of a beneficiary or multiple beneficiaries. There are a number of ways to organize a trust and to spell out how assets will be distributed to the beneficiaries. One of the main benefits of a trust is that it is not subject to probate, so beneficiaries avoid the costly and time-consuming process of waiting for the courts to sign off on a person’s will. 

Trusts come in many forms, which are broken up into two main categories: revocable and irrevocable. 

• Revocable Trust

A revocable trust allows the grantor (the owner of the trust) to retain control of the trust during their lifetime. When you set up a revocable trust with yourself as trustee, you have the ability to move assets in and out of the trust at any time and to change the terms or beneficiaries of the trust if you wish. You can also designate an alternate trustee who will manage the trust in the event you become incapacitated. 

A revocable trust is not subject to probate. However, any assets held in the trust may be subject to estate taxes after you die. Furthermore, the trusts’ assets are viewed in the same way as any other asset you own while you are still alive. (e.g. subject to state and federal tax). A revocable trust typically converts to an irrevocable trust upon your death. 

• Irrevocable Trust

An irrevocable trust is an instrument that is generally used to protect your assets from estate taxes after you die. When you place assets in an irrevocable trust, you effectively remove them from your estate and hand over control to a third-party trustee. In this way  you avoid generating any tax liability from the income they earn while you are alive. You may also protect them from any legal judgments rendered against you. 

Setting up a trust can be complicated, and laws vary a great deal from one state to another. For this reason, we recommend that you contact an attorney or other estate planning professional to help you decide if a trust is right for you. 

Conclusion

The importance of estate planning cannot be understated. Estate planning is essential in ensuring that your wishes regarding the distribution of your assets and personal possessions are respected when you die. Assembling a team of professionals and implementing the right legal documents can ensure that your family is taken care of in the way you want. Estate planning should be done sooner rather than later, allowing individuals to control their own destiny and rest assured that their legacy will remain intact after they’re gone.

For additional information on estate settlement and distribution of assets, see our Comprehensive Step-by-Step Planning Guide: Settling the Estate.

Sources

“What Are “Digital Assets”?” Nolo. https://www.nolo.com/legal-encyclopedia/what-are-digital-assets.html

“Understanding Estates: Planning and Writing Your Will Effectively”. Investopedia. https://www.investopedia.com/terms/e/estate.asp

“Power of Attorney of Property: Definition, Use, and Application”. Investopedia. https://www.investopedia.com/terms/p/powerofattorneyproperty.asp

“Types of trusts: Choosing the right one for you”. U.S. Bank Wealth Management. https://www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/types-of-trusts-which-should-i-choose.html

“Certifications for Estate Planning”. Investopedia. https://www.investopedia.com/articles/financialcareers/09/estate-planning-certifications.asp

“Chartered Life Underwriter: Key Benefits and Qualifications”. Investopedia. https://www.investopedia.com/terms/c/clu.asp

“Chartered Financial Consultant (ChFC): Comprehensive Guide and Benefits”. Investopedia. https://www.investopedia.com/terms/c/chartered-financial-consultant-chfc.asp

“What Is a Certified Financial Planner (CFP)?” Investopedia. https://www.investopedia.com/terms/c/cfp.asp

“What Is a Will?” Nolo. https://www.nolo.com/legal-encyclopedia/what-is-will.html

“What a Will Won’t Do”. Nolo. https://www.nolo.com/legal-encyclopedia/what-will-wont-do-29767.html

“Property Titles: Tenants by the Entirety”. The Balance. https://www.thebalancemoney.com/tenants-by-the-entirety-3505608

“What’s the Difference Between Joint Tenancy and Community Property?” Amity Law Group. https://www.edmundvincentlaw.com/blog/difference-between-joint-tenancy-and-community-property-estate-planning

“Transfer on Death Deed: What It Is and How It Works”. LegalZoom. https://www.legalzoom.com/articles/understanding-the-transfer-on-death-deed

“Uniform Probate Code”. Cornell Law School. https://www.law.cornell.edu/uniform/probate

“Understanding Intestacy: If You Die Without an Estate Plan”. FindLaw. https://www.findlaw.com/forms/resources/estate-planning/die-without-estate-plan.html

“What is a Durable Power of Attorney, and How does it Work?” LegalZoom. https://www.legalzoom.com/articles/what-is-a-durable-power-of-attorney

“Self-Proving Affidavits”. Nolo. https://www.nolo.com/legal-encyclopedia/self-proving-affidavits.html

“What Is a Trust?” Fidelity. https://www.fidelity.com/life-events/estate-planning/trusts