Estate planning is the process of arranging who will receive your assets when you die. One goal of estate planning is to make sure your wealth and other assets go to those you intend to receive them — and not to others — with a particular emphasis on minimizing taxes so that your beneficiaries can keep more of your wealth. But good estate planning can also reduce family strife and provide clear end-of-life directives should an individual become incapacitated before ultimately passing away.

Unfortunately, many people fail to establish an estate plan, even those who would benefit significantly from it. There’s an extreme lack of estate planning among people of all levels, says Jenny Xia Spradling, co-founder of FreeWill, a site that creates legally binding wills and trusts at no charge.

Here’s a rundown on estate planning and why you and your loved ones absolutely need it, regardless of how much wealth is involved.

Types of estate planning

Estate planning can come in a variety of forms, from basic beneficiary designations when you open a bank or brokerage account to more complex and comprehensive plans. Below are a few of the most common elements of an estate plan and what you might want to consider.

Beneficiary designations

Whenever you open a financial account, typically a bank, brokerage or insurance account, you’ll be asked to provide a beneficiary for the account. The beneficiary is first in line to receive any funds from the account on your death. You may divide your assets among multiple beneficiaries, if you wish, and name contingent beneficiaries in case the primary beneficiaries are not alive.

Naming a beneficiary is quite important: Your beneficiary designation typically supersedes any other declaration in your estate. That’s why experts urgently recommend you to name your beneficiaries. If you die without a will, accounts with named beneficiaries may at least still go directly to your heirs.

Many retirement accounts such as a traditional IRA or Roth IRA have named beneficiaries.

Will

A will is another key document in the estate plan. At death, it directs where the assets go that you own individually that lack a designated beneficiary. Property that’s owned jointly, such as with a spouse, passes directly to the surviving owner or owners. An executor will be appointed by the court to carry out the will and manage the distribution of assets when the time comes.

“Wills have been around for a long time and it doesn’t take a lot to make a will,” says FreeWill’s Xia Spradling. “The legal code was actually designed to be easy for people to make their last wishes known.”

Wills that come into effect are examined in probate court, a public process that allows potential creditors to make a claim against the estate. Only after the estate is settled with creditors will the remaining assets be distributed to heirs in accordance with the will.

Probate can be a notoriously tortuous process, and it’s not unusual for probate to take a year or even two to be completed. And it could be pricey as well, with fees of up to 5 percent of the estate.

Wills can be a cornerstone of an estate plan, but many people are turning to trusts these days because they can make settling the estate much less cumbersome, tricky and slow.

Trusts

Trusts come in many varieties, and while it may sound complex, a trust is relatively simple at its core. A trust is a legal vehicle that allows a third party, the trust, to hold assets on behalf of a beneficiary. Trusts allow you a number of estate-planning options, not least of which is the ability to sail through probate court while maintaining a relatively high level of privacy.

Trusts allow you to control how your assets are directed after your death, not only to whom the money will be given but also under what circumstances. This control can be a valuable feature when directing assets to individuals with questionable ability or maturity to handle money. You can also choose the trustee(s) you want to manage and direct the trust on your passing.

While trusts can be complex, one of the simplest and easiest to execute is the revocable trust. Such a trust helps shepherd your assets through probate and directs the assets according to your wishes. You can even serve as the trustee and make changes during your lifetime. Trusts become worthwhile with surprisingly little money, as well, with at least one expert suggesting they begin to make up for the start-up costs for those who have at least $150,000 in assets.

More complex trusts with various stipulations (such as keeping spouses or profligate children at bay) may require the expertise of a skilled lawyer. And of course, you can also use trusts to bypass at least some taxes, one of the reasons for the perennial popularity of trusts.

Living wills

Death is not the only situation in which you may be unable to make a decision. You may be alive yet incapacitated, and in this scenario it’s quite useful to have a clear statement of your wishes. That’s where a living will can be valuable, because it lays out how you want to be treated during your end-of-life care, including specific medical treatments to take or refrain from taking.

A living will is often combined with a durable power of attorney, a legal document that can allow a surrogate to make decisions on behalf of the incapacitated individual.

Top benefits of a good estate plan

Estate planning helps you avoid many unfortunate situations, and while it can take some time and money upfront, you can avoid many worse problems later on. For example, if you don’t provide a clear estate plan, the state will do what appears best in its judgment, which is unlikely to coincide with what you would choose to do. Don’t leave your estate up to the state.

Minimizes taxes

If you plan ahead, you can minimize the amount of your estate that goes to Uncle Sam and maximize the amount that goes to Aunt Sally. Clever structuring of flexible retirement accounts such as a Roth IRA can help funnel more tax-free money to your heirs, while other tax-planning strategies such as strategic charitable giving can help you mitigate the tax bite.

Now is a particularly advantageous time for a Roth IRA conversion due to some changes in the tax code and historically low tax rates, though this strategy won’t work for everyone.

Prevents family squabbles

Your family may normally get along well, but it’s still wise to write a will so that things remain that way. The possibility of a cash grab may rile up some relatives, while others may hide a sentimental treasure that they hope goes unnoticed. Regardless of your wealth, careful estate planning helps prevent your family from squabbling, whether it’s a little tiff or an all-out lawsuit.

Clarifies your directives

Part of the value of the will is telling people how you feel about them and what they meant to you, says Xia Spradling.

You may have always intended for your niece Bertha to get that heirloom, but unless it’s written out in the estate, anyone can make a dash for it. An estate plan ensures your assets go to the person you want to have them. By clearly spelling out your wishes – often with the help of a lawyer – you can help your loved ones remember you fondly or at least get what you intended.

Avoids the time and expense of probate court

Set up your estate right – think, a well-crafted trust – and you’ll sail through probate court, likely the most annoying and time-consuming step of the entire process. Because of the ease of using a trust, more and more people are doing an end-run around the hassles of probate and setting up their estate this way. Plus, you don’t need as much wealth as you might think to make it worthwhile.

Keeps your family assets together

Trusts can also be a valuable way to ensure that your money stays in the family. Structured correctly, a trust can keep a profligate nephew from blowing your lifetime of hard work in a few years. It may also keep money in the family if an ex-spouse tries to extract some of it.

Protects your heirs

A good estate plan can also protect your heirs in a number of ways. If your children are minors, your estate plan can instruct who will take care of them and how they will receive money. It can also protect heirs from recrimination if a relative would otherwise accuse them of stealing. A living will can also help heirs avoid some of the difficult health decisions during a parent’s end of life.

Estate planning mistakes to avoid

Estate plans are important and there are plenty of ways to get the basic elements of your plan together at a low cost on your own. But it’s easy to make mistakes along the way — and those mistakes could cause additional stress and turmoil for your loved ones after you’re gone.

Here are a few estate planning pitfalls to watch out for:

  1. Avoiding the process: It’s never too early to create an estate plan, and waiting until a health crisis or other emergency strikes can leave you unprepared.
  2. Not speaking with a lawyer: While the internet is a great resource, it’s not an ideal place to get legal advice. Trying to make an estate plan on your own can lead to incomplete or faulty documents, and potential legal problems down the road for the heirs. Speaking with an estate planning attorney is always a smart move.
  3. Not sharing your estate plan: Not talking about your estate plan with your loved ones — or at least telling them where they can find a copy of the plan after you pass away — can lead to misunderstandings and disagreements after you’re gone.
  4. Ignoring digital assets: Make sure to include digital assets, like who will manage your social media accounts and who will inherit your cryptocurrency holdings, in your estate plan.
  5. Not updating your plan: Major life changes — such as marriage, divorce, the birth of a child or the death of a family member — are ideal times to update your estate plan. Failing to do so can lead to potential legal battles among your family members.

Bottom line

Estate planning can help prevent a number of potentially troubling problems from arising, even if you don’t have a lot of money. By determining how you want to handle your estate before you pass, you’ll save your loved ones a lot of effort, money and grief when it comes to dividing your estate. And more importantly, you’ll get what you want, even if you’re not around to see it.