What Is Estate Planning?

What Is an Estate Plan?

An estate plan is a blueprint for how you want your finances and your health to be managed up until your death if you are incapacitated, and how your assets will be distributed upon your death. Choosing not to make an estate plan means a court will decide who your heirs are and distribute your assets to them through a process called probate.

Developing an estate plan is particularly important when you have minor children, children with special needs or you want your assets or wealth going to specific charitable causes or people in your life. It empowers you to make decisions about your future and prepare a plan so that your family isn't left guessing or squabbling over your intentions.

How Does Estate Planning Work?

When you make an estate plan, you assemble a number of legal documents with instructions for your heirs and the medical community.

If your family and financial situation are uncomplicated, you may be able to create an estate plan on your own. But engaging an estate planning attorney is generally worth it to ensure you don't forget anything or make mistakes that could muddle the process for your beneficiaries. You may also need to work with a financial advisor if you have questions about your retirement plans, taxes, life insurance or other financial matters.

To make an estate plan, you'll work with an expert to create these documents, plus more depending on your personal circumstances:

1. Last will and testament: A will is perhaps the most widely known component of an estate plan. In it, you identify the people and charities who will receive your assets when you die, choose a guardian for your minor children and name an executor who will oversee your estate.
2. Trust: Creating a living trust helps you avoid probate. It's a legal entity that identifies beneficiaries for your assets and is overseen by a trustee. A trust can also provide estate tax benefits.
3. Power of attorney: You can also set up two types of power of attorney: a medical power of attorney and a financial power of attorney. Each identifies a person who will take responsibility for decisions about your health care and your finances, respectively, if you no longer can. You can also direct a financial power of attorney to manage your digital estate, or your online financial, social media and email accounts plus any photos or other files saved on your phone and computer.
4. Living will: If you are terminally ill, can't talk or otherwise cannot make decisions on your own at the end of your life, this document tells health care professionals about any medical treatments you want to prioritize or avoid, palliative care wishes and organ donation plans. Do not resuscitate (DNR) and do not intubate (DNI) orders can be made separately, or as part of a living will. Together with a medical power of attorney, a living will is a type of advance health care directive.

Learn more: What Is the Difference Between an Executor and Trustee?

Will vs. Estate Planning

A will is just one part of an estate plan. It includes directions for the distribution of your assets and for the guardianship of your children. But it doesn't cover other crucial aspects of end-of-life planning.

A full estate plan may also include a living will with instructions for medical treatment if you're incapacitated and a medical and financial power of attorney in cases where you can't make decisions on your own. It can also include a living trust, which is a mechanism for distributing your assets that prevents your will from getting stuck in probate court.

How Much Does Estate Planning Cost?

Working with a lawyer to set up a full estate plan, including a will, powers of attorney, living trust and living will, can cost from $2,000 to more than $5,000, according to the National Council on Aging. The amount you pay will depend on the complexity of your situation and lawyers' fees where you live.

It's also possible to create certain elements of an estate plan, like a simple will, online using tools like LegalZoom or Rocket Lawyer. Stay vigilant, though, about your state's legal requirements for estate planning documents and whether online platforms meet them. If your personal circumstances have any complexity beyond leaving minimal assets to a single beneficiary, working with a professional is likely worth it.

If you do go the route of DIYing any of your estate planning documents, it's probably prudent to pay a lawyer to review them. This will cost less than hiring an attorney for your full estate plan, but ensures your documents are legally enforceable in your state.

What Are Estate and Inheritance Taxes?

The two types of taxes that come into play when estate planning are estate taxes and inheritance taxes.

Estate Taxes

Estate taxes are collected upon your death if your estate's total value exceeds certain exemption limits. As of 2026, the federal government can collect taxes on estates with values that exceed $15 million. Assets that exceed this dollar amount are taxed up to 40%, but estates can bring down the actual rate they end up paying with tax credits and other methods.

Twelve states—Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington—and the District of Columbia collect estate taxes. Their rates are lower than the federal government's, ranging from 0.8% to 35%, but their exemptions are also often lower, such as $1 million in Oregon and $5 million in Vermont. Connecticut's exemption, however, matches the federal government's, and is $15 million as of 2026.

Inheritance Taxes

Five states tax inheritance: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Heirs are subject to inheritance taxes based on the value of certain items they inherit and how close they are to the person who has died. Close family members, for example, will likely pay less tax than those who are friends or distant relatives.

There's no federal inheritance tax. But inherited securities and real estate can lead to capital gains tax if an heir sells them and earns a profit.

Why Is Estate Planning Important?

Estate planning can bring the following benefits:

• Control of your assets' distribution: Setting up a comprehensive estate plan lets you choose how your wealth is allocated, including to any charities you care about, at your death.
• Tax savings: Going beyond a will to create a living trust as part of a broader estate plan can help you minimize the amount of estate tax your estate will pay.
• Less discord among heirs: Clear instructions in an estate plan can help prevent conflict among family members and heirs who have different ideas about assets they're entitled to.
• Potential to avoid probate: Having an estate plan may also limit the time, fees and loss of privacy that would otherwise be necessary during the state probate process.
• Peace of mind regarding medical care: When you create an advance health care directive as part of an estate plan, you gain more control over how you're treated in health care settings if you're not able to communicate your preferences.

When to Start Estate Planning

Consider starting the estate planning process at the following milestones:

• Marriage: Getting married is a natural time to update beneficiaries on your life insurance plans or retirement accounts. You can use this milestone to start estate planning, as well, and considering who will inherit your other assets.
• Having children: A will lets you identify a guardian who can take care of your children if both of their parents die or aren't present in their lives. But going deeper with an estate plan can make sense if you want to create a trust for your children overseen by a professional. That can provide more extensive oversight and ensure the trust's assets are well invested.
• Acquiring assets, like a home or inheritance: Once you have valuable assets that you want to control the distribution of at your death, an estate plan becomes crucial. Additionally, if your estate will be taxed by your state or the federal government due to its size, an estate plan will let you consider how taxes could affect the value of your assets.

Learn more: What to Do When You Inherit a House

Estate Planning Tips

Careful estate planning is a final gift your heirs will appreciate at an already difficult time. Here are some tips for making the estate planning process go smoothly:

• Work with professionals. These can include attorneys, tax professionals and investment advisors with estate planning experience. They can ensure you meet legal requirements in your state and make savvy choices that will benefit your heirs.
• Review your beneficiaries. Regularly update the beneficiaries of your will, payable-on-death accounts (more on these below) and trusts to save your heirs time and trouble. Eliminate any beneficiaries who have died, make changes if you've gotten married or divorced and consider grandchildren or even great-grandchildren who may have come along since you first compiled your estate plan.
• Account for financial changes. If you acquire a second home or other real estate, set up new individual retirement accounts (IRAs), discover a nonprofit you feel passionate about supporting or otherwise have big changes in your financial picture, your estate planning may need to be adjusted accordingly.

More Estate-Planning Tools You Might Explore

The elements below may help you clarify and strengthen your estate plan. Each tool isn't for everyone, but may be useful in certain circumstances.

Payable-on-Death (POD) Accounts

A payable-on-death (POD) account lets you name a beneficiary for assets in a checking, savings, money market or certificate of deposit (CD) account directly with a financial institution. In theory, choosing to name a POD beneficiary means you don't have to designate an heir for these assets in your will or trust, and, as with a living trust, you can skip probate.

But having a will and, often, a trust is important for numerous other reasons, and POD designations can complicate the distribution of your assets if there are conflicting wishes in your will. Beneficiaries may also have to pay inheritance taxes, depending on their state of residence.

Living Trusts

Unlike a will, which often requires going through the time-intensive probate process, a living trust allows for the distribution of your assets by a trustee as you've specified. That can mean your heirs receive their inheritances faster, and you can keep your assets and wishes secret rather than in the public record.

There are two types of living trusts: revocable and irrevocable. You can change the details of a revocable trust while you're alive, but when you die, creditors can draw on the trust in order to settle your debts, and the assets in the trust are subject to estate taxes. Irrevocable trusts cannot be changed, and assets aren't vulnerable to creditors or, generally, subject to estate taxes.

Charitable Bequests

Some charitable gifts can be deducted from the estate's total value for purposes of calculating estate taxes. It may be possible in some cases to use gifts to bring an estate's total value below the federal or state exemption limit, preventing taxation of the assets that remain.

Prepaid Funeral Arrangements

You can choose to preplan or prepay for your funeral, or both, to give your loved ones support in making arrangements. Preplanning means writing down your wishes for cremation or burial or particular ways you'd like your life celebrated and including them in your estate plan.

Prepaying for your own arrangements is possible, but could be risky. It means choosing a funeral home, finalizing an agreement and paying for services while you're alive. It may not cover all the costs required, though, and there are potential complications if you change your mind or the funeral home is no longer operating when you die.

Living Wills

A living will is a type of advance directive that clarifies the end-of-life medical care you want if you can no longer communicate your preferences. It can include your wishes regarding organ donation, life support methods and where you want to receive care or to die if you have the choice.

You can find and download your state's advance directive forms through the National Alliance for Care at Home. Include a copy in your estate plan and give one to your loved ones, your medical power of attorney and your doctor.

Frequently Asked Questions

The Bottom Line

Estate planning is a big undertaking. It requires thinking through potentially uncomfortable topics like dividing up your assets and receiving end-of-life medical care. But it also helps to limit confusion, bitterness and uncertainty among your grieving family members. When you work with an estate planning attorney and define your wishes in advance, you give yourself and your family the gift of peace of mind.