Estate plan

What is an estate plan?

An estate plan is a legal document that outlines what is to happen to a person’s assets after they die or become incapacitated, often with the aim of reducing taxes.

Deeper definition

An estate plan includes a series of steps and strategies developed by someone prior to death to arrange for the distribution and management of their assets and debts. Estate plans allocate assets to heirs and specify how estate taxes and other debts should be handled.

Estate plans are often complex documents drawn up by an estate planning attorney or a financial adviser versed in estate law. Estate planning is customized to meet an individual’s wishes and needs. Generally, it will include a legally binding will, guardianship arrangements for any dependents and funeral arrangements. Estate plans also name an executor to oversee the will and make sure its provisions are carried out.

An estate plan names beneficiaries for assets such as IRAs, life insurance policies and 401(k) plans. It also usually sets up trust accounts for beneficiaries and lays out plans for annual gifting to reduce federal and state taxes.

Estate plan example

Dave is a husband and father of four with considerable assets. He and his attorneys have created an estate plan so that Dave’s money, land, homes, yacht and other assets are distributed according to his wishes after his death. His estate plan also includes detailed funeral arrangements. Dave works with tax and estate lawyers to plan financial gifts to family members and charities that will reduce the tax burden on his estate and his heirs. He names his oldest child as the executor and files the estate plan with the court.

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