What Is Estate Planning? 6 Steps to Get Started

Ever watched the track-and-field races during the Summer Olympics? One riveting event is the relay—when a team of runners works together to win. And the symbol of their teamwork is the baton, which they hand off seamlessly from one runner to the next. Olympians know if they drop the baton, the race is as good as over.

Estate plans work the same way. There’s plenty of teamwork and handoffs leading up to a well-earned victory. But what is estate planning? And how can you get some going for yourself?

Estate planning means taking the right legal and financial steps to pass the baton to the next generation. It’s making sure that responsibility and wealth are transferred to the right people in the right way. It’s a job where you can’t afford a sloppy handoff. Everything should be smooth and controlled—just like those world-class athletes executing an Olympic relay!

This might all seem scary, overwhelming or simply boring. But we can guarantee you’ll feel more confident about your future after you’ve made (and communicated) these decisions to the people you care about most.

And we’ll help you get there. You’ve got this! 

What Is Estate Planning?

Estate planning is the process of deciding what’ll happen to everything you own after you pass away. It involves creating binding legal documents to make sure your wishes are carried out (sometimes called wills).

Your estate plan also clearly delegates authority to people you trust to make medical, financial and legal decisions for you if you can’t.

But wait . . . what is the purpose of making an estate plan?

Wills and estate planning aren’t just for old, wealthy people. Every adult needs an estate plan—because you can die at any age! Yay!

Okay, not a fun thought, but confronting it now allows you to stay in control of what you own. And if you’re an adult, we’re betting you own at least something—and hopefully many somethings.

If you die without a plan in place, the state gets to decide what happens to those somethings. And your family could spend months or years in probate court instead of just weeks.

Understanding Estate Planning

If the word estate conjures up images of Downton Abbey, you’re not wrong—that’s definitely an estate. But you don’t need to have a scullery maid on staff to have an estate.

Do you own a 1999 Honda Civic? You have an estate. Do you own an Xbox Series X? You have an estate. You should be feeling pretty fancy by now.

In the context of financial estate planning, estate simply refers to what you’re going to leave behind, no matter what it is. We’re talking assets—the stuff you own that has monetary value. Things like houses, cars, jewelry, investments, coin collections, etc. If you can drive it, wear it or shine it, it’s part of your estate.

Your estate plan covers who gets your stuff, how they get it, what happens to you when you die or become disabled, specifics about your medical wishes, and who takes care of any kids or pets.

Here’s everything you’ll need when you’re planning an estate:

• A will or living trust
• A letter of instruction
• Financial power of attorney
• Medical power of attorney
• Living will (maybe—more on that later)
• Beneficiary designations (that’s legal talk for who you’re giving your stuff to)

Why Is Estate Planning Important?

If you’ve experienced the death of a loved one and been part of what happens after, you already know how important it is to have a good plan in place. If your loved one didn’t have a good plan, then you really know. But for those who haven’t experienced this yet, we’re here to tell you: Get this done.

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If you die without a plan in place, your family will have to make big, hard decisions while they’re overwhelmed by losing you.

Plus, if you don’t make a medical power of attorney, your family could have to make tough choices about your end-of-life care—and you might not like the decisions they make.

Do you own a business? Planning what happens when you die is especially important for you. You’ve got employees who depend on your business and need it to survive.

So, it’s pretty clear estate planning matters . . . a lot!

And by the way—an estate plan is more than just a legal chore. See it as an opportunity to think about your legacy. If you have children, how do you want them to remember you? Are there any special instructions you’d like to have carried out at your funeral? Who do you want to bless with your wealth?

This isn’t about protecting your stuff. It’s about using your wealth and possessions for good.

What Are the Benefits of Estate Planning?

This is one of those things where you don’t really get the direct benefit. Except for end-of-life directives, like a living will or medical power of attorney, most of the work you’ll put into your estate plan will be for others—not you.

But think about it: You will get the peace of mind knowing you did everything you could to make your passing easier on your loved ones.

A well-crafted plan can hand down your stuff while sidestepping avoidable estate planning costs, like taxes, court costs and legal fees. Nobody wants this: Hey guys, I’m dead. Here’s my house. Well half of it—the other half goes to the state of Arkansas. Enjoy living in the master bedroom and office after 13 months of probate. That’s right, there’s no bathroom—that went to the lawyers in legal fees.

(That’s an exaggeration.)

But still, your estate plan can help your loved ones spend as little time as possible in probate court and avoid taxes and fights over who gets what. You could help keep your family together or tear them apart! It’s happened.

And while generally people don’t find joy in thinking about being dead, you could have fun deciding who to bless with your earthly goods. Who do you think would just love to have your old vinyl collection? Who could really put your investments to good use?

Jack Benny, one of America’s great comedians, set up a bequest for his wife to receive a single red rose every day after he died—just an idea.

Who Needs Estate Planning?

Like we mentioned earlier, you don’t have to have maids and butlers to have an estate. Maybe you do own a palatial house with a stable and tennis courts—and bully for you if you do! If so, you may need a lawyer to help you figure out estate planning law.

But if you’re Joe Smith and don’t have to choose between the Lamborghini and the Bentley for your grocery run, you can probably make your own basic estate plan online.

Check it.

6 Steps to Estate Planning

Estate planning has a lot of layers and details to it. Let’s break it down as simply as possible. Here are six steps you can take to start making your plan.

1. Make a list of all your assets.

Your assets are the things you own that make up your estate and contribute to your overall net worth. This includes items like:

• Your home and real estate properties
• Vehicles
• Cash in checking and savings accounts
• Retirement and investment accounts
• Stocks, bonds and CDs
• Businesses you own
• Valuable possessions, like jewelry, antiques and furniture

Do an inventory of your wealth, whether your estate is worth $200 or $2 million. Remember, every person over the age of 18 needs a will and estate planning—or at least a will—to make things easier on their family if something happens to them.

2. Gather the documents you’ll need.

After you’ve made a list of your assets, you need to gather corresponding paperwork and important documents related to your estate. Here’s what we're talking about:

• Life insurance policy
• Long-term care insurance policy
• Housing or land deeds
• Vehicle titles
• Marriage license
• Divorce papers
• Military discharge papers
• Partnerships or business agreements

Got any usernames or passwords on any of these accounts or documents? Include that information too.

All of these estate planning documents need to be stashed together in a secure place. Think safe deposit boxes or a legacy drawer. (If a digital legacy drawer makes more sense for you, try storing everything in a secure online file.) Once you’ve created your estate plan documents, you’ll add these to the drawer.

Make sure the executor of your will and important family members know where to find it!

3. Have a family talk.

Most of the time, surprises are fun—like a surprise vacation to Miami or an unexpected bouquet of sunflowers. But, “Surprise—I’m naming you as agent in my power of attorney! Please sort out my finances!” doesn’t get quite the same reaction. 

If you’re appointing someone to execute your will or serve as your agent, then you need to let them know ahead of time. Sit down with your family and make sure everyone is on the same page about what will take place when you’re the star of the funeral.

A big part of estate planning is deciding who you trust to execute your will and make financial and health care decisions on your behalf. The legal word for these people is fiduciaries. It sounds like a fancy word, but a fiduciary is simply someone who has to act in your best interest. The root of the word itself comes from the Latin word for trust. It also sounds like Fido—but don’t make your dog your fiduciary!

No matter what your family status is, you need to talk with your family and friends who will be impacted by your estate plan.

• If you’re married, plan a special time to talk with your spouse about your estate. Y’all are teammates—so make sure you’re working toward the same goal!
• If you’re single or newly single, you’ll want to sit down with your family and close friends to discuss your estate plan.
• If you have minor children, you need to spend some time thinking through who you’d like to choose as their guardian. If they’re old enough, involve them in the conversation so they’re not caught off guard by the decision after the fact.

4. Figure out if you need to meet with an estate planning attorney.

Planning an estate is one of those things that looks different for each person. It’ll depend on the type of job you need to get done. If you have a small estate and a straightforward family situation, you’re probably fine saving some money and creating a will online—there’s no need to meet with an attorney.

But you will need to meet with an attorney if you find yourself in these situations:

• Your estate is complicated. If your estate is Bill Gates-adjacent (or a decent size) or you have particular family concerns, you might need an expert’s help. The larger your estate, the more complicated your estate plan will be. Don’t risk your family’s financial security by making this a DIY project.
• You want to avoid federal estate tax. Depending on the size of your estate, Uncle Sam sometimes steps in and takes a portion of your wealth before it passes on to your children or the organizations you want to support. You can work with a pro to avoid estate taxes so your money serves the purposes you have in mind. 
• You need help understanding state-specific estate planning laws. Estate planning laws vary throughout the country, so working with a knowledgeable local attorney will help you make good decisions—especially if you have assets in various states.

If you’re looking for a good estate planning attorney, ask around. Talk to your financial advisor. Get a referral from your tax pro. Ask your parents. Read online reviews. Then get an appointment on the calendar!

5. Start estate planning.

Okay—for all you people who love details, get ready to nerd out. If you’re more of a free spirit, buckle down and just get it done. You’ll get through it. We promise. 

An estate plan is made up of several legal documents a lawyer typically creates and you sign. You keep copies of those documents and let your family know where to find them in case something happens to you. The basic paperwork in an estate plan usually includes:

• Will
• Living trust
• Power of attorney
• Living will
• Letter of instruction

Let’s talk about each one.

Will

A will (or last will and testament) is a legal document that tells other people what you want done with your possessions when you die. Every adult over age 18 needs to have a will. Period.

Even if you don’t have much to pass along, you’ll still save your family tons of time in probate (the legal process of sorting through your possessions after you die) by having a will in place.

Making a will is a pretty simple process that’ll only take a few minutes. But the peace of mind you’ll have knowing your wishes are locked in and clear will last a lifetime. You can even do your own will online. Create a legally binding will and make your powers of attorney with RamseyTrusted provider Mama Bear Legal Forms in 20 minutes or less!

Inside your will you’ll want to appoint an executor. That’s a big job with the following duties:

• Carrying out your will
• Taking care of the estate during probate
• Paying any outstanding debts
• Making sure everybody gets what they’re supposed to get

When it comes to wills though, there’s a critical bit of info you need to know: Your will doesn’t determine the outcome of certain assets. This includes your retirement accounts, annuities and life insurance. Each of those plans will give you the opportunity to name a beneficiary for the account (the person who gets your money when you die), and you should make sure you take it.

Living Trust

A living trust is similar to a will with one exception: You transfer your money, property, investment earnings and other valuable stuff into a trust while you’re still alive.

At that point, you don’t own whatever you’ve put into the trust—the trust owns it. You also appoint a trustee—someone who manages the trust and has to give approval before any big changes are made. (By the way, the trustee can be you—it’s actually pretty common.)

Now, setting up a trust can be expensive and add a layer of hassle to your life. (Every time you want to sell something owned by the trust, you have to jump through a few extra hoops and have the trustee sign off.)

But if you have a large estate? For you, a trust might be a good idea. A trust adds a layer of legal protection for your estate. And when you die, your trust doesn’t have to go through probate. A trust is also private, while a will is public. Nobody but your beneficiaries will know what you’ve given to others.

Powers of Attorney

Every estate plan includes a power of attorney (POA): a document giving someone the legal authority to make financial or health care decisions on your behalf. This becomes a big deal as you age, because no one—not even your child—can access your financial accounts without your permission.

There are two main types you need to be aware of: a medical power of attorney and a financial power of attorney. You can appoint the same person to serve as your agent in both your medical and financial POA, or you can select two different people.

Financial POA

The trusted person you name as agent in a financial POA will help you manage your money, access your accounts, or act with legal authority to manage your financial affairs for you if you become incapacitated.

Medical POA

An agent named in a medical POA makes decisions about your medical care when you can’t make them yourself. For example, if you have an elderly parent with dementia, they’re not able to process information completely. A POA is helpful for making decisions about their care.

Living Will

A living will, also called a health care directive, is kind of similar to a medical POA. A living will explains your wishes for end-of-life medical care, like whether to resuscitate you if you’re in a nonresponsive state. If you have a medical power of attorney, there’s no need to have a living will. You can simply combine the day-to-day health care decisions and end-of-life care in the medical POA. But if you have a living will, you should definitely make sure you have a medical POA as well.

Letter of Instruction

A letter of instruction (aka a letter of intent) is an informal document where you can provide personal instructions that aren’t included in your will. And while it has no legal authority, it can make things easier on your family by spelling out your special wishes.

Because it’s not a legal document, you can write and update your letter of instruction however you want—it could even be handwritten on a piece of notebook paper. But make sure it’s easily accessible and someone like your executor knows where it is.

6. Revisit and update your estate plan on a regular basis.

When you go through major life changes, your estate plan should too! Update your will anytime one of these major events occurs:

• Moving to another state
• Getting married
• Getting divorced
• Having kids
• Selling a business

Make it a habit to review your estate plan about once a year (whether or not you’ve had any major life changes come up). If you have a lawyer, this is a perfect opportunity to check back in with them to see if there are any legal or tax changes that could impact your plan.

Common Estate Planning Mistakes to Avoid

Since we just went over what you should do, hopefully you can just laugh at these common mistakes. But just in case, let’s look at a few of the biggest estate planning blunders people make.

Financial Procrastination

It makes sense to put off estate planning because many of us will never die . . . said no one ever. But many of us say it with our actions!

We get it. It’s just not fun to think about what’ll happen when you die, but like drinking enough water and eating your veggies, it’s really important. Dying without a will can create a mess. Don’t let procrastination get the better of you. Make your estate plan!

Not Keeping Your Will Up to Date

This one’s no fun. Seriously, you’ve already done the responsible thing and put in all this work. You’ve got your tidy plan all tucked away in a legacy drawer. In fact, it’s been tucked away so long it’s actually outdated now.

Cousin Larry croaked, his wife got weird and remarried, and now you don’t want her getting the Revolutionary War musket that great-great-great-great-great grandpappy used to shoot a Redcoat. Don’t let this bite you in the butt. Review and update your plan every few years.

Not Telling Loved Ones What’s in Your Will

If you’re planning on leaving someone out of your will or you don’t want your husband’s crazy sister to take the kids, this one might be understandable. But . . . it’s not a good idea to leave your family in the dark.

Don’t pull a Harlan Thrombey and create a real-life example of Knives Out. Tell everyone what’s in your will so there are no surprises and nobody can question what you wanted.

Uncoordinated Beneficiaries

Like we mentioned, there are a few assets that get their own beneficiaries named separately—things like mutual funds, life insurance and retirement accounts (IRAs and 401(k)s). Many people get confused because you can also name a beneficiary in your will for these assets.

Take a look at Sam. He named his brother Ethan on his IRA when he was a young, unmarried buck. Sam took his time finding Mrs. Right and didn’t get married until his late 30s. Wanting to be on top of things, Sam wrote a will and named his new wife, Amber, the beneficiary to his nice fat IRA and everything else. Tragically, Sam died in a car accident after only three years of wedded bliss. Even though it’s her name in the will, Amber won’t get the IRA. That’ll go to Ethan because the account names him and that trumps a will.

Make sure the beneficiaries on your accounts match the beneficiaries in your will!

Not Thinking Through a Well-Intended Gift

Generosity is a good thing. And wanting to bless someone with your earthly goods when you pass on is usually great. But not always.

Saddling someone with an inheritance they don’t want—like a business—might not be the kindest thing. You may have loved running Dave’s Bird Store, but your nephew who’s studying to be an accountant might not be into it.

When you give away your assets, it’s possible to put some conditions on the gift—like your nephew won’t get your ’67 Corvette until he turns 25. But it’s not always the best idea to do this, especially if the beneficiaries are healthy, well-adjusted adults.

On the other hand, there are instances where you might need to think about putting very specific terms on a gift. Handing a large stack of money to an alcoholic or drug addict could just make their life worse.

Naming Only One Beneficiary

They say one wedding often brings on another, but how about contagious funerals? Is that a thing? Let’s hope not. Still, it’s something you should consider when writing a will.

Car accidents and other tragedies can take out more than one family member at a time. If you leave everything to your husband and don’t name anyone else but you both drive off a cliff on your second honeymoon in Monaco, your will is useless.

Another scenario involves naming a beneficiary, but then they die before you and you don’t update your will. Naming contingent beneficiaries will fix all these potential problems.

Estate Planning 101

Well, that wraps up our estate planning advice!

Let’s face it: Estate planning isn’t a rip-roaring, knee-slapping joyride. It can look daunting—it is a lot to think about, but it doesn’t have to be overwhelming or even that hard. And it can bring so much peace and satisfaction knowing you’ve done your part to help your loved ones during one of the worst times of their lives.

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