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What Is Estate Planning?

Estate planning is a necessary component of any financial plan. Here’s how it works, what it’ll cost, and how to find a planner.

Estate planning is an important process for us to ensure our assets are handled properly after we pass away. It typically involves working closely with an advisor, such as an attorney, to identify heirs, minimize taxes and other expenses, as well as develop a comprehensive strategy for your assets.

Understanding how estate planning works can give you much-needed peace of mind and avoid future stress for those closest to you. In this article, we’ll teach you about the process, why it’s important, and break down the key steps toward developing a strategy for your assets.

Understanding Estate Planning

By creating an estate plan, you’re ensuring that there’s a structure in place for your money at the time of your death. This way, your finances have a better chance of being preserved or distributed properly. Without one, your assets may end up in the wrong hands and unnecessary drama may ensue. 

Having a direction in mind does more than protect your assets, however. An effective one will also help you avoid probate, or, at the very least, remove any unnecessary barriers. Probate is when a court administers a will or, if there isn’t one, a deceased individual’s estate. A comprehensive strategy can also help you assign power of attorney (in case of incapacitation) and help reduce expenses, such as taxes.

A typical estate plan consists of several elements, including:


Drafting a will is a major step in planning your estate. It’s the instrument that dictates the distribution of your assets. The document names the executor and beneficiaries, as well as lists any special instructions you have. Also, if you have children under the age of 18, it can name someone as a legal guardian.


A trust refers to an arrangement where a trustee (a third party) agrees to hold assets on behalf of a beneficiary. It’s a flexible tool that allows your estate to avoid probate and protect your money for several generations. Certain types of trusts, such as irrevocable trusts, can also help minimize taxes. Overall, they’re a smart and versatile way to distribute your money in the event of incapacitation or death, while also saving hassle for your loved ones.

Power of Attorney

If you were to become incapacitated, you’ll want someone you trust to make decisions about your finances or health. An estate plan can help you grant power of attorney to a trusted individual. This label can refer to either financial or health powers.

Beneficiary Designations

It’s critical to designate beneficiaries or heirs in your estate plan. When you do so, consider who you want to receive any amount of your property and assets. This is also a key step toward avoiding the probate process because you’ll have named specific individuals. 

Advance Healthcare Directives

Creating healthcare directives, such as a healthcare proxy or living will, grants more clarity for how you want your medical decisions to be made if you’re unable to do so yourself. For instance, if you have specific wishes regarding life-sustaining treatment, this will tell your loved ones or someone with power of attorney how to proceed.

Letter of Intent

A letter of intent is a way to communicate your wishes to your executor and beneficiaries. It is not, however, a legally binding document. But it’s an effective way to ensure there’s clarity about what you want. You can include various details in a letter of intent, including the bequest of belongings and funeral arrangements.

Why You Should Create an Estate Plan

As crazy as it may sound, everything in your possession at this very moment is part of your estate. And, if something were to happen to you, your belongings and any assets would be distributed in some way. By building an effective plan, you get to have a say in where or to who your money goes.

Not only do you get to control where your money goes, but you can also develop a plan for your healthcare if you become incapacitated, minor children (if any), and any other wishes you have.

Without a plan in place, there can be a series of consequences. First, your money may not go exactly where you want. No will means your assets are subject to probate. Also, there may be a ton of undue stress on your loved ones. Taxes, attorney fees, and court costs can add up as well. Ultimately, something in place takes the pressure off of those closest to you and leaves nothing in question.

Estate Planning Steps

Whether you work with a financial advisor or do it yourself, building an estate plan takes several steps. Initially, you or a professional will need to assess your current monetary situation, as your goals for the future. You’ll also need to develop a clear vision of what your wishes are, such as where you want your assets to go, healthcare directives, power of attorney, and more. Finally, you’ll draft and store your essential documents.

Here’s a detailed look at what you’ll need to accomplish to build an effective estate plan:

  1. Review your assets and liabilities. You’ll need to assess your current assets and liabilities you have. This will give a clear picture of your financial situation and help you determine how much you’ll be able to give to any heirs.
  2. Identify your goals and beneficiaries. Before you draft any documents, you should pinpoint exactly what your goals are. This way, the plan will be tailored toward what you want, and nothing else. It’s also crucial to pick beneficiaries at this stage.
  3. Consult with an expert. Building a DIY estate plan may be tempting, but it’s a smart idea to confer with a professional, such as a financial advisor or attorney. They can help you avoid mistakes and make sure everything is done right.
  4. Draft various estate planning documents. Now, it’s time to draft the documents you’ll need, including:
    1. Will
    2. Trust agreements
    3. Healthcare directives
    4. Power of attorney
    5. Letter of intent
  5. Monitoring and updating. As your current situation and goals change, so might your strategy. An advisor will periodically review all aspects of your finances to make sure your estate plan aligns with your other goals. If necessary, your advisor will work with you to make any needed adjustments.

How to Find a Planner

It’s a good idea to have a professional in your corner as you build your estate plan. However, there are several different types to choose from. Both function a bit differently, but they’ll support you, nonetheless. In general, these will be available to you:

  • Financial planners. This individual can help coordinate the entire process, including working with other professionals to facilitate various needs, such as document drafting.
  • Attorneys. An attorney can work with you to develop your plan, while also ensuring you’re following state and federal laws. They can also help you write official documents, such as your will or healthcare directives.
  • Accountants and tax experts. The bequest of assets may result in pesky estate taxes that your loved ones will need to deal with. Having a tax expert, such as a CPA on your side can help minimize this where possible.
  • Life insurance agents. Many estates involve a life insurance policy. An agent will make sure your policy is set up in a way that’s optimal for you and your beneficiaries.
  • Bankers. A banker can help you establish trusts and other accounts meant for your estate. And, if you choose to do so, they can get you a safe deposit box, so you can store your essential documents.

Unless you want to tackle this process on your own, you may use at least one or all of the above. Each professional has its benefits. It’ll be up to you to decide how to leverage each one to build a plan that satisfies your objectives.

To easily find professionals in your area, we recommend using a free matching tool. After you fill out an easy-to-complete form, it’ll match you with up to three vetted financial advisors.

How Much It Costs

The cost to develop an estate plan varies based on several factors. These include the complexity of your needs, who you hire, and even where you live. Here’s a detailed look at each:

  • Project complexity. What you want to accomplish plays heavily into the cost of your estate plan. For example, hiring someone just write a will may only cost around $500. However, including other documents, such as directives and trust can drive the price way up.
  • Who you hire. Building a proper estate plan can take several experts, or it may only need one, such as an attorney. Employing more professionals will cost you more, but it may be necessary for what you want to accomplish.
  • Where you live. Your location can impact the cost to hire a planner. For instance, big cities often have pricier attorneys than rural areas.

Frequently Asked Questions

What is the role of an executor in estate planning?

An executor is a person who is responsible for carrying out your wishes, such as distributing assets and paying debts. They also have a fiduciary duty, which means they must act in the best interest of the estate.

Are planning fees tax deductible?

No, they’re not. Due to the Tax Cuts and Jobs Act of 2018, financial advising and legal fees are no longer tax deductible.

Can I do my own estate planning?

Yes, you can. However, it may not be the best idea if you want everything done as advantageously as possible. There may be laws or ways to save money that you don’t know about. Plus, having a second pair of eyes will help you avoid potential mistakes.

How do I select an executor?

This is a tough but important choice. It’s wise to choose someone you trust will follow through with your wishes, such as a child, close friend, or sibling. Also, consider choosing someone on the younger side, so there’s no risk that they’ll be medically unfit to carry out the estate.