Estate Planning
An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate and personal property includes everything else, for example cars, household items, and bank accounts. Estate planning distributes the real and personal property to an individual's heirs.
Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. A major concern for drafters of estate plans is federal and state tax law.
Wills and trusts are common ways in which individuals dispose of their wealth. Trusts, unlike wills, have the benefit of avoiding probate, a lengthy and costly legal process that oversees the transfer of assets. Sometimes, though, it will be useful to make inter vivos gifts (gifts made while the donor is alive) in order to minimize taxes.
For most people, there are five major considerations in choosing between estate plans:
- Avoiding probate
- Minimizing taxes (estate taxes and income taxes, including capital gains taxes)
- Controlling the future uses of the assets
- Costs and other practical considerations
- Protecting against future incapacity as well as death
At one time, the first two concerns motivated most estate plans. Today the prospect of long term nursing care and tremendous medical expenses, coupled with a concern about the possibility of future mental incapacity, play at least as large a role in most plans.