What is estate planning law?

What estate planning is for

An estate plan answers three questions: who receives your property, who manages it and makes decisions if you cannot, and who cares for your minor children. Without a plan, state law answers those questions for you — through intestacy rules, court-appointed guardians and conservators, and probate — often in ways people would not have chosen. Estate planning is not only for the wealthy: a young parent with a modest home and a life insurance policy often has the most at stake.

The core documents

• Will — directs who receives probate property, names an executor, and nominates guardians for minor children.
• Revocable living trust — holds property during life and passes it to beneficiaries at death without probate; also provides for management if you become incapacitated.
• Durable power of attorney — authorizes an agent to handle finances if you cannot.
• Health care power of attorney (health care proxy) — names someone to make medical decisions.
• Living will or advance directive — states your wishes about life-sustaining treatment.
• HIPAA authorization — lets named people receive medical information.
• Beneficiary designations — on life insurance, retirement accounts and bank or brokerage accounts; these override the will.

Areas of law involved

Estate planning draws on several bodies of law at once: state law on wills, trusts, probate and powers of attorney; property law on how assets are titled; family law on marriage, divorce and guardianship; federal and state tax law on estate, gift, income and generation-skipping taxes; and federal rules on retirement accounts and Medicaid. That is why the same goal — leaving the house to the children — can be achieved in several ways with very different consequences.

Taxes

The federal estate tax applies only to very large estates; the exemption is in the millions of dollars per person, and a surviving spouse can use the unused portion of the deceased spouse's exemption. About a dozen states and the District of Columbia impose their own estate tax, often at much lower thresholds, and a handful of states have an inheritance tax paid by heirs. Income tax matters more for most families: inherited property generally receives a stepped-up basis, while most non-spouse heirs of IRAs and 401(k)s must withdraw the account within ten years and pay income tax on it.

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Special situations

• Minor children — naming guardians and holding money in trust until the children are older than 18.
• Blended families — providing for a current spouse while protecting children from a prior marriage.
• A family member with a disability — a special needs trust preserves eligibility for SSI and Medicaid.
• Business owners — succession plans and buy-sell agreements.
• Long-term care — Medicaid planning, often handled together with elder law.
• Property in several states — a trust avoids multiple probates.
• Charitable giving — bequests, donor-advised funds and charitable trusts.

What happens without a plan

Probate property passes to heirs under the state's intestacy rules; unmarried partners and stepchildren usually receive nothing. A court chooses guardians for minor children and may require supervised accounts until they turn 18, when they receive everything outright. If you become incapacitated, family may need a court guardianship or conservatorship to pay your bills or make medical decisions, which is public, slow and expensive.

Keeping a plan current

Review the plan every few years and after marriage, divorce, birth or adoption, a death in the family, a move to another state, a large change in wealth, or a change in tax law. Divorce revokes gifts to a former spouse in many states but not always for every account; updating beneficiary designations is essential.

Working with a lawyer

Online forms can work for very simple situations, but mistakes in signing, titling or coordination with beneficiary designations are common and often discovered only after death, when they cannot be fixed. Estate planning lawyers typically charge flat fees — from several hundred dollars for a simple will package to several thousand for a trust-based plan. Bring a list of assets, how each is titled, current beneficiary designations, and your wishes for children and decision-makers to the first meeting.