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financial literacy
Estate planning for everyone

Chen suggests creating a short list of people who would be assigned guardianship. "This is usually a separate document but it can go in a will," he says.

There are two types of guardians: guardians of property and of person. "One person can take care of the property of the minor; the other takes care of the personal well-being of the minor. A lot of people will separate the two. That's very popular nowadays," says Blatt.

Wills do not control assets in retirement plans, annuities or life insurance policies, for which you fill out forms to designate beneficiaries. These assets should also be considered components of your estate plan.

For the full scoop on wills, see Bankrate's Guide to wills.

5. Trusts 
In our collective imagination, even the castaways' assets were run through probate back in the states after their presumed deaths. Unless they planned ahead and moved ownership of their property to living trusts, even those with meager estates were subject to probate and its accompanying fees. Anything you can move into a trust will avoid the expensive, time-consuming probate process.

Trusts sometimes remove assets from your personal estate and are subject to different tax laws. "It's not the rich who pay estate taxes, it's those who don't seek counsel," says Gjertsen.

Think you're not rich enough to worry about estate taxes? Not so fast, says Gjertsen. "Even though we're going through a soft period in real estate -- you take a house, retirement plans, insurance and lump it all together, you get up to some substantial sums.

"Uncle Sam is giving us $2 million each that we can give to an heir, so by using trusts, a husband and wife can effectively give $4 million to heirs without paying estate taxes if the estate is set up correctly."

In 2009, the exemption amount is $3.5 million per person, and in 2010 the estate tax is repealed. However, unless Congress acts, the following year it reverts to $1 million.

Besides avoiding probate and probate costs, trusts allow for more control and protect your heirs' inheritance. They're also particularly important if your spouse is not a U.S. citizen.

For more information, read Bankrate's articles about the benefits of trusts and types of trusts.


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