Where Do You Start With Estate Planning? Wills, Trusts, and What to Know First

Holds a life insurance policy outside of the taxable estate, preventing the death benefit from being counted toward the gross estate for estate tax purposes. The trust owns the policy rather than the individual, with proceeds paid to the trust upon death for distribution to named beneficiaries.

One important timing consideration: if an existing policy is transferred into an ILIT rather than purchased directly through it, the grantor generally must survive three years from the date of transfer for the estate tax exclusion to apply.

One spouse transfers assets into an irrevocable trust for the benefit of the other, removing those assets from the taxable estate while the beneficiary spouse retains access to distributions. A key consideration: if the beneficiary spouse passes away first, the surviving spouse loses that indirect access entirely.

If the beneficiary spouse passes away first, the surviving grantor spouse permanently loses indirect access to those assets. If the couple later divorces, that access is similarly lost, and because the trust is irrevocable, it cannot be unwound. Finally, if both spouses establish SLATs for each other around the same time, the IRS may apply what's known as the reciprocal trust doctrine, potentially treating the assets as if they never left each spouse's taxable estate. These risks make the structure and timing of a SLAT particularly important to get right.

The grantor transfers assets into the trust and receives fixed annuity payments back over a set term. Any growth above the IRS hurdle rate (think of it as a government-set benchmark that rises and falls with the interest rate environment) passes to heirs with little to no gift tax consequence. GRATs tend to work best when the transferred assets are expected to appreciate, making them a common consideration for clients holding concentrated positions or other growth-oriented assets.

If the grantor passes away before the trust term ends, the full value of the assets may revert to the taxable estate, eliminating the anticipated benefit. Shorter trust terms reduce that exposure but also leave less time for appreciation to accumulate. 

Designed to benefit a person with a disability without disqualifying them from means-tested government programs such as Medicaid or Supplemental Security Income. Assets held in the trust supplement those benefits rather than replace them, covering expenses the programs may not.

Designates someone to manage your financial affairs such as paying bills, managing accounts, and handling property transactions if you become incapacitated, depending on how the document is drafted. Without one, a court may need to appoint a guardian or conservator (someone with legal authority to manage financial affairs), a process that can be lengthy and costly. The "durable" designation means it remains valid even after the principal loses capacity, which is what makes it useful for exactly the situations it's designed to address.

There are two common approaches to when a durable POA takes effect:

• Immediately enforceable: 
• The document is active the moment it is signed, regardless of the principal's capacity. The agent can act right away without needing to prove anything. This is often preferred by estate planning attorneys for its practicality, though it does require a high degree of trust in the person being named.
• Springing:
• The document only becomes effective when a specific triggering event occurs, most commonly a formal determination of incapacity. While this may feel like a natural safeguard, it can introduce delays at exactly the moment speed matters most, since activating the document typically requires physician certification or other documentation confirming the triggering condition has been met.

Not all states recognize springing powers of attorney, and the definitions and requirements vary.

Documents your preferences for medical care in end-of-life or incapacity scenarios. This can include preferences around life-sustaining treatment, resuscitation, and other interventions. A healthcare directive speaks for you when you cannot speak for yourself and can relieve family members of having to make those decisions without guidance.

Names a specific person to make healthcare decisions on your behalf. Where a healthcare directive addresses your stated preferences, a healthcare proxy designates who interprets and acts on those preferences in real time. The two documents are often used together.

It's worth noting that the terminology for this document varies by state. "Healthcare Proxy" and "Medical Power of Attorney" refer to the same general function but may be defined or titled differently depending on where you live. An estate planning attorney in your state can clarify which term and form applies.

When someone dies without a will, a situation known as dying intestate, the state steps in and determines how assets are distributed. Each state has its own intestacy laws that determine how assets are distributed, typically following a fixed order of priority among relatives. In most states, a long-term unmarried partner would receive nothing. Stepchildren who were not legally adopted may also be excluded. Intestacy laws follow a fixed formula, they have no mechanism to account for the relationships, circumstances, or wishes that didn't make it into a legal document. Depending on the state and family structure, this may not reflect what the person actually wanted.

For example, a long-term partner who was never legally married may receive nothing under intestacy laws. Close friends, stepchildren not legally adopted, or estranged relatives could all be treated differently than the deceased would have preferred.

Without clear documentation of intent, disputes among surviving family members are more likely. Even families that appear to be on good terms can find themselves in disagreement when significant assets or sentimental property are involved. Resolving these disputes can require litigation, which is costly, time-consuming, and often damaging to relationships.

Estates without a will or trust structure typically go through a more complicated probate process. This can delay the distribution of assets by months or even longer, and legal and administrative fees reduce what is ultimately passed to heirs.

For parents of minor children, this may be the most consequential risk of all. Without a named guardian in a will, that determination rests entirely with the court. Even with one named, courts retain discretion but the designation carries significant weight. While judges aim to act in the best interest of the child, the outcome may not align with what the parent would have chosen.

Without a durable power of attorney and healthcare directive, family members may have no legal authority to manage your finances or make medical decisions if you become incapacitated. Even a well-meaning spouse may encounter legal roadblocks when trying to access accounts, communicate with healthcare providers, or make time-sensitive decisions without the proper documents in place.

Intestacy laws do not account for charitable intentions, specific gifts to friends, or assets you wanted directed toward a particular purpose. If those wishes were never put in writing through a valid legal document, they generally cannot be honored.