Estate Planning 101: A Step-By-Step Guide

If the idea of estate planning confuses or overwhelms you, you’re not alone. Estate planning is a topic that many people rarely think about, so it’s no surprise that there is a lot of confusion around it. Although estate planning may not be the most exciting task, it becomes increasingly important as we grow older and accumulate assets.

It’s completely normal to draw a blank on the legal documents needed to create an estate plan. Many people aren’t sure where to start or which forms are essential. In addition, it can be hard to know whether you need an estate planning attorney or if a DIY approach is sufficient for your situation.  

Whether you’re brand new to the idea of estate planning or simply need a refresher, we can help you unpack the estate planning basics in terms that are easy to understand.

Key Takeaways

• Create a clear plan for your assets: Determine who will receive your money and belongings, and minimize taxes, by drafting a will, designating a power of attorney, and considering a trust, to ensure your loved ones inherit what you want them to have.
• Don’t wait until it’s too late: Having an estate plan in place can help avoid costly court battles and ensure your wishes are honored, even if you’re young or don’t have a lot of assets, so start by taking inventory of your assets, including tangible and intangible items.
• Avoid common estate planning mistakes: Not designating a guardian for minor children or pets, not updating your plan after a major life event, and not telling your loved ones about your wishes, can lead to unnecessary delays and complications, so make sure to review and update your plan regularly.
• Get expert help when you need it: Consult with an estate planning attorney to ensure your estate plan is comprehensive and accurate, and help identify the right tax-saving strategies, such as the home sale tax exclusion or primary residence exclusion.

What is estate planning?

Estate planning is the process of determining who will receive your money and belongings, also known as assets, when you pass or are no longer able to manage your own affairs.

One of the main goals and advantages of estate planning is the opportunity to minimize taxes, so your loved ones can get the maximum benefit from the legacy that you leave them.

Who needs an estate plan?

The word “estate” might make you think of mansions and vast amounts of wealth, but you don’t necessarily need to have expensive personal property and real estate assets to benefit from an estate plan.

If you pass without having a valid estate plan in place, the distribution of your belongings will be left up to the courts. Estate planning helps ensure  that your wishes are honored and your loved ones can avoid unnecessary delays and complications.

What documents will you need for estate planning?

Most estate planning begins with drafting a will, which outlines how your assets should be distributed when you pass or become incapacitated. Advance care directives, power of attorney forms, and living wills are also recommended when making an estate plan. 

In addition, individuals with a higher level of wealth often choose to establish a trust to manage their assets and control how they’re distributed in the future. 

It’s worth noting that there are different types of taxes that are separate from estate planning, but still important to be aware of. These two taxes are:

• Inheritance taxes: A tax paid by the recipients of an inheritance (many states do not impose inheritance taxes)
• Gift tax: Unlike inheritance taxes, gift taxes are paid by the gifter (the person who gives the gift). There is a different limit each year for how much you can give to one person before you pay taxes. For 2024, it was $18,000 per individual, and in 2025, it is $19,000.

8 Steps for estate planning

Here’s a general estate planning guide broken down by eight essential steps to help you get on the right path toward building your estate plan.

Take Inventory of Your Assets

The first step you should take when planning your estate is to evaluate all the items, tangible and intangible, that you have in your name. You can write a  paper list or use software to log your assets.

Tangible (physical) assets can include:

• Real estate – houses, land, etc.
• Jewelry
• Family heirlooms
• Cars and other vehicles
• Furniture
• Art
• Electronics
• Antiques

Intangible (non-physical) assets can include:

• Checking and saving accounts
• Retirement accounts like 401(k) or IRA
• Health savings accounts (HSA)
• Investments like stocks and bonds
• Life insurance policies
• Patents, trademarks, copyrights

Make sure you include everything you own; anything you forget to include may be left to the courts to handle and distribute. 

Assess Your Goals

This might seem obvious, but it’s a good idea to take some time to think about what is important to you when building your estate plan. Personal values and priorities  won’t be the same for everyone and your estate plan should reflect what matters most to you.

Are there specific things you want to provide for your children or loved ones? You also may want to donate a portion of your estate to a certain charity.  And if you own a business, it’s important to have a plan for passing ownership to the right person. . 

When you know what is most important to you, it’ll be easier to choose which estate plan is best for you. 

Determine Guardianship

If you have children or pets that need to be taken care of, you’ll want to designate someone you trust to take care of them should anything happen to you. This should be included in your will. If you don’t have a will or don’t designate a legal guardian for your dependents in your will, the courts will appoint a legal guardian.

While making such decisions, it is also a good time to consider who you’ll name the executor of your will. This person should be someone that you know well and can trust to to handle responsibility. Most people choose a family member to execute their will, but some prefer to choose a friend, accountant, lawyer, or financial institution. 

Gather Documents

Once you know what assets you have and who you want to give them to, it’s time to get the required paperwork done. While this isn’t the most exciting part of the process, it’s crucial to have the proper paperwork in place to ensure your wishes are carried out.

Here are some of the main documents you’ll likely need while doing your estate planning:

• Will: This is where you designate the recipients of all your property and assets and assign an executor who will carry out your wishes when the time comes. If the value of all your assets is on the lower end and you don’t think you need an estate plan, you’ll still want to execute a will. 
  
• Power of Attorney: Most estate plans include a power of attorney (POA) form that allows someone you trust to act on your behalf, which is important if you become mentally incapacitated due to an injury or illness.  There are two types of POAs:
  • Durable POA: Gives a  person you appoint the power to manage your financial affairs.
  • Limited POA: Details  specific circumstances in which an appointed person would take over your financial affairs.
    
• Advance Healthcare Directives, which can include the following:
  • Living Will: A written statement of your wishes for your own healthcare and end-of-life care should you become unable to express informed consent.
  • Durable power of attorney for healthcare: You appoint someone to make healthcare and end-of-life decisions for you if you’re unable to do so.
    
• Trusts (if applicable): A trust gives a third party person or institution (like a bank) permission to manage money for the good of the beneficiary. The two most common types of trust are living trusts and testamentary trusts:
  • Living Trust: A trust account that is formed while you’re alive, which you can make changes to (so long as it is a revocable living trust).
  • Testamentary Trust: A trust written in your will which is enacted after your passing.

Whether working with a lawyer, financial planning service, or deciding to do it yourself, you’ll want to look into all the above options so you can create the right estate plan for you.

It is important to note that you may not need each one of these forms. The forms you need will depend on your wishes, the size of your estate, if you have dependents, and many other factors.

Make it Official

When you have all your paperwork, you’ll need to sign and notarize all the forms so that everything is finalized and legally binding.

Reassess Accordingly

Once your estate plan is in place, it’s important to remember that life changes. You may have a child,  buy a second home, get married, divorced, or encounter other major life events. When these moments happen, it’s important to update your estate plan accordingly. Since you already did the majority of the work setting up your estate plan, amending your plan should be a breeze. 

Tell Your Loved Ones

As part of the estate planning process, be sure to inform those who are close to you of your wishes and intentions so that everyone is on the same page. This ensures there are no surprises for your loved ones when the time comes. You’ll also want to make sure to notify your chosen executor, if you haven’t already.

Consult a Professional

If you rely on an expert to handle your family taxes, it makes sense to seek expert guidance when creating your estate plan as well.  Whether you choose to work with an estate planning attorney or use a reputable service, having support can help simplify the process and ensure nothing important is overlooked.

How does estate planning impact taxes?

Depending on the value of your estate and your state of residence, your estate might be subject to certain estate taxes. This is a tax that the government imposes on the estate itself. The executor of the estate is responsible for paying any necessary taxes. Requirements for filing a return are only applicable to estates worth more than $13,610,000 for those who passed in 2024 or $13,990,000 for those who passed in 2025.

Lastly, don’t forget to look into the rules for your state of residence as well.  Some states have estate taxes, some have inheritance taxes, and some have both. You might not have to pay either of these taxes depending on where you live and how much the estate or inheritance is worth.