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Estate Planning 101

March 10th, 2010

Editor’s Note: This is a Guest Post by a fellow blogger, Joel Ohman.

Author Bio: Joel Ohman is a Certified Financial Planner™, the owner of 4 web based companies, and is currently undertaking some consumer comparison web projects that include a website for reading credit card reviews, a site with some cool financial calculators, and a website for comparing homeowners insurance rates.


It could be argued that the lack of a formal estate plan is one of the chief concerns for many Americans who may consider themselves “average” but quite uncertain as to whether the estate planning process is for them or just “rich people”. Well, the truth of the matter is that all of us “average people” need an estate plan. From those with multimillion dollar stock portfolios, primary and secondary residences, and BMW’s, to those with a couple hundred thousand dollars in a retirement plan, a house with a mortgage, and a Kia, the necessity of a proper estate plan remains. None of us can know how many more days that God has granted us on earth before it is our time to go and whether or not you are mortgaging your health for wealth, the truth remains that you just never can know what will happen.

While I am not an attorney and nothing is this brief article should be considered estate planning advice/legal advice/personal financial planning advice/tax advice/yada yada you know the deal I do think that it would be helpful if we went through some of the basic things to understand about the estate planning process and all that it entails.

Let’s get started and if you have any questions then please feel free to leave a comment ask an attorney! Just kidding! Please leave any questions you have as a comment and one of our attorney readers can be sure to jump in.

Common Estate Planning Terminology

Here are some of the most common terms used in estate planning and if you don’t get anything else from this article then at least look over this section and learn a few new fancy terms that you can bandy about with any estate planning attorney that you decide to hire!

Decedent: The deceased (once you die then you are referred to as “the Decedent”)

Will: A written legal declaration from the decedent that explains how the decedent wants their property to be distributed (who gets what, who is in charge of seeing that certain things get accomplished, etc.)

Power of Attorney: A written legal declaration that authorizes someone else to act on your behalf. There are three different kids of power of attorney: durable, general, and special. Durable power of attorney authorizes someone to act on ones behalf when they become unable to manage their own affairs (because of physical reasons, mental reasons, etc.), general power of attorney authorizes someone to conduct business on one’s behalf, and special power of attorney authorizes someone to conduct only specific business transactions on one’s behalf.

Living Will/Health Care Proxy/Medical Power of Attorney: All of these terms basically mean a written legal declaration that specifies how one wants situations involving life sustaining care to be handled (i.e. when the plug should be pulled).

Intestacy Laws: State laws that govern how property should be distributed when someone dies without a will. To die “intestate” is to die without a will.

Executor: The person named in the will who is in charge of making sure that certain things outlined in the will get accomplished

Administrator: The person who is appointed by the probate court when someone dies intestate (and “intestate” means… let’s see if you were reading the above definitions or just skimming… to die “intestate” is to die without a will).

Trust: A written legal declaration by someone setting up the trust (called the trustor) that gives certain rights to an individual caretaker (called a trustee) to manage the property of the trust (called the corpus) in a way that is in accordance with the terms of the trust and used for the benefit of a certain individual, company, or organization (called a beneficiary). Trusts can be formed during the trustor’s lifetime (called an inter-vivos trust) or upon the trustor’s death (called a testamentary trust).

Probate Estate: The property that is distributed from the decedent by way of the decedent’s will or the state’s intestacy laws.

Federal Gross Estate: The property that is included into the calculation for determining the decedent’s property that is subject to Federal estate taxation (generally speaking that is comprised of property owned by the decedent at death, property in which the decedent had any incidents of ownership, life insurance death benefit proceeds, and certain gifts). It is worth mentioning here that a common misconception about life insurance is that since life insurance death benefit proceeds are income tax free, they are 100% tax free. This is not necessarily the case as life insurance death benefit proceeds typically are counted as part of the Federal gross estate and potentially subject to estate taxes.

Why Everyone Should Have an Estate Plan

Why is it important to do some estate planning no matter what your financial situation is? The easiest answer is to just simply say that having a proper estate plan is pretty much the only way that you can be fairly certain that your wishes are carried out even after you are dead. No doubt you have heard people complain about there being many strange laws and legal loopholes for allowing all kinds of crazy things to happen and you might have even thought the same things yourself. That being the case – why would you want to not take the proper legal precautions ahead of time rather than dying intestate and leaving your property to be doled out however your state’s probate court sees fit? Avoiding the probate process is one of the primary goals of most estate plans as probate can be a long and drawn out process that may or may not end up with the results that the decedent would have wished.

Common Estate Planning Strategies

Here are some of the most common estate planning strategies:

  • Creating a will
  • Creating a power of attorney
  • Creating a medical power of attorney/living will/health care proxy
  • Creating a credit shelter trust
  • Creating an irrevocable life insurance trust (ILIT)
  • Creating a qualified terminable interest property trust (QTIP)

There are really a bazillion and one different types of trusts and complex estate planning strategies that a qualified estate planning attorney can discuss with you.

What is YOUR Estate Planning Strategy?

What are some of the concerns that YOU have about estate planning? What types of estate planning strategies are YOU utilizing? How well prepared do you think that you would be if you were to pass away unexpectedly (Scale of 1-10 with 1 being not prepared at all and 10 being ultra prepared)?

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