Estate planning isn’t only for the extremely wealthy. Anyone who has assets, dependents, or an interest in how they are cared for when they age should consider a form of estate planning.

More than half of the population leaves no formal plan in place for their loved ones when they pass. Familiarizing yourself with the basics of estate planning can save you and your loved ones’ unnecessary grief during an already difficult time.

What is estate planning?

Estate planning is the process of determining what happens to everything that belongs to you or that you’re responsible for in the event of your incapacitation or death. It covers far more than just your wealth. An estate planning document can include directions for many aspects of your life.

  • Guardianship of your dependents: This describes who will assume legal care of your dependents should you become incapacitated or die.
  • Distribution of your assets: It details exactly how all your assets will be divided and to whom they will go, whether they are cash, property, or otherwise.
  • Charitable giving: This outlines the amount of money or assets that will be donated to charity in the event of your incapacitation or death.
  • Business transfers: If you are a business owner, this outlines the person or people to whom you will leave your business (or the value of your business).
  • Health care directives: The purpose is to outline your wishes for decisions that may need to be made should you be incapacitated and unable to make these decisions yourself. This may also include designating a person to make health decisions for you should you be incapacitated.
  • Directions for your final arrangements: This is intended to describe your wishes for funeral or other end-of-life services. For example, this would describe whether you would prefer cremation, burial, or another option.

Why do I need estate planning?

If a person passes or becomes incapacitated without having an estate planning document in place, the state will decide his or her affairs through what can be a long and costly process called probate. During probate, the deceased’s bank accounts may be frozen, finances may be controlled by the court, and the court will appoint a guardian for dependents.

Having an estate plan enables you to control what happens to the things that matter most to you and may save your loved ones’ unnecessary stress.

  • Reduce family conflict
  • Minimize taxes
  • Reduce legal expenses
  • Preserve your wealth
  • Protect your assets
  • Provide for your loved ones

11 legal terms you should know

Before delving deeper into estate planning, it’s important to understand some basic legal terms.

  • Fiduciary: This is a person who is expected to manage assets for the benefit of another person, rather than for their own profit, and who cannot benefit personally from their management of assets.
  • Beneficiary: This is a person or entity that receives property.
  • Estate: This refers to everything owned by a person or anything that the person is entitled to own at the time of passing or incapacitation.
  • Executor: This is the person designated by the signer of a will to carry out its terms.
  • Grantor: This is the person transferring the estate through a trust.
  • Power of attorney: This refers to a document that assigns a designee/trustee to act on the behalf of the signer in financial, legal and/or healthcare matters if the signer becomes incapacitated.
  • Probate: This is a court process that ensures the deceased's assets are distributed to the proper heirs according to state law.
  • Testator: This is the person who signs a will (and is transferring the estate).
  • Trust: This is a legal entity that owns certain assets or will assume ownership of certain assets upon a triggering event. A trust forms a fiduciary relationship between the grantor and the trustee, providing direction and instruction on how assets in the trust should be handled and distributed.
  • Trustee: This is a person designated by the grantor to carry out the terms of a trust.
  • Will: This is a legal document that provides instructions for the distribution of assets and the care of dependents upon death or incapacitation.

Did you notice? Sometimes different legal terms are used to describe similar concepts across two of the main estate planning tools: wills and trusts. For instance, executor and trustee have similar meanings as do testator and grantor.

What are the main estate planning documents?

Wills and trusts are the primary legal documents you can use to specify how you want your assets distributed and who you want to care for your dependents.

The general purpose of trusts and wills may be the same, but they have very distinct differences.


  • May take effect while the grantor is still alive.
  • Do not go through probate and instead remain private.
  • May have protections against certain taxation, litigation, or creditors of the estate.


  • Take effect after the death or incapacitation of the testator.
  • Do not include instructions for your care in the event of incapacitation.
  • Usually go through the probate process and become public record.
  • Do not offer protection against certain taxation.

What are the two main types of trusts?

The two main types of trusts can be distinguished by when and how they take effect.

  • Living trust: A living trust takes effect while the grantor is still alive. This type of trust allows a trustee to manage your estate and make decisions on your behalf in the event you become incapacitated, without the need for a separate power of attorney. A living trust can be revocable, meaning the trust can be changed or canceled by the grantor at any time, or irrevocable, meaning the trust can’t be changed or canceled during the grantor’s lifetime.
  • Testamentary trust: A testamentary trust is the beneficiary of a will and therefore, only takes effect upon the death of the grantor. This type of trust allows the grantor to create very specific terms for the transfer of assets to beneficiaries (for instance, designating a specific age at which a minor will receive an inheritance or specifying a monthly schedule for the distribution of assets to a beneficiary).

What if I can’t decide if I need a will or a trust?

Wills and trusts both have benefits and deciding which to use depends on many personal factors. Reviewing this fictitious scenario may help you determine which is right for you.

If you’re still unsure which type of document fits your needs, consult with an estate planning attorney. Be sure to check with your state’s guidelines for estate planning preparation to ensure that you meet all the legal requirements.

What do I need to know about taxation?

The beneficiaries of your estate may have to pay federal and state taxes on their inheritance, depending on the value of the estate and the state in which they live. With a basic understanding of estate tax law, you could save your loved ones the hassle and costs of filing.

There are three main taxes you should consider when planning your estate. We’ll provide you with an overview of each, but for specific exclusions and restrictions that apply at the state level, you’ll need to investigate your own state’s tax laws.

  • Estate taxes: The federal government and some states tax the assets received from an inheritance up to a certain amount. That amount is typically very high. If you aren’t incredibly wealthy, you probably don’t need to worry about your beneficiaries paying federal or state estate taxes.
  • Gift tax: A gift tax is charged to assets received by beneficiaries before death. This tax is put into place to ensure that people don’t try to avoid paying estate taxes by distributing their assets while they are still living. The gift tax only affects very wealthy estates (those that exceed the annual and lifetime exclusion amounts).
  • Inheritance taxes: A few states require beneficiaries to pay an inheritance tax in addition to an estate tax. How much the beneficiary must pay is usually determined by the relationship between the grantor and the beneficiary, the type of assets, the age of assets, and the cost basis of the assets. The closer the relationship, the lower the tax.

What if I become incapacitated?

Make sure that your financial plan includes directions for your care and the care of your dependents in the event of your incapacitation.

  • Durable Power of Attorney: Designates an individual to manage your affairs according to your wishes in the event you become incapacitated or can no longer manage your own affairs. You can set it up to be revoked as soon as you are able to care for yourself.
  • Health Care Proxy: Designates an individual to make healthcare decisions on your behalf in the case you become incapacitated.
  • Health Care Directive: Dictates which medical procedures, treatments, or health care decisions you’ve made for yourself—without someone else intervening on your behalf (as with a health care proxy). This document is left with your doctor and is sometimes called a living will or directive to physicians.

The Health Insurance Portability and Accountability Act (HIPAA) is in place to protect a patient’s privacy, even if they are incapacitated. Make sure you provide HIPAA authorization to anyone you think may need to be involved in making decisions about your care.

What are some common issues I should consider?

Estate planning tools provide support for handling typical asset transfer and guardianship issues. However, many of us have situations that fall outside of “typical.” The following are some common issues you may want to discuss with an attorney when creating your will or trust.

  • Relationships without a formal license
  • Blended families
  • Pets
  • Charitable giving
  • Special needs dependents
  • Estranged spouses or family members

Key points

Estate planning is an important task that everyone should consider. There is a lot of information you should know, but here are a few key points to keep in mind.

  • Decide for yourself: Without an estate plan, the state will decide what happens to your assets and dependents.
  • Cover all your bases: An estate plan may include the distribution of your assets, the care of your dependents, and the management of your healthcare.
  • Be aware of applicable laws: Estate planning related laws and taxes vary from state to state.

Next steps

  • Review your assets: Take inventory of your assets and determine the value of your estate, including all digital assets, such as cryptocurrency.
  • Find trusted support: Determine who you trust to act as an executor, trustee, and/or guardian, and communicate your intentions with these individuals.
  • Do your research: Research your state’s laws and taxes related to estate planning.
  • Seek support: Evaluate will preparation software tools online, or even consider consulting with an estate planning attorney.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.

Article written by EVERFI