5 Key Components of an Estate Plan — and 7 Others to Consider

No one likes to imagine getting seriously ill, injured or worse, but these occurrences are a reality of life. Although you can’t prevent every catastrophic scenario, you can better manage the consequences by figuring out what you want to happen if you become incapacitated or pass away. Who should manage your money when you can’t? What are your preferences for health care? Who will inherit your property?

A comprehensive estate plan includes multiple legal documents that lay out your instructions for medical professionals, the financial institutions managing your money and the courts that will distribute your assets after your death. “An estate plan ensures your wishes are honored when you’re no longer there or able to enforce them,” says Joe Fresard, an attorney with Simasko Law in Mount Clements, Mich.

If you don’t put together an estate plan, the government and the courts will make these decisions on your behalf, following state law. Your loved ones will be required to apply for legal permission to manage your money and make your health care decisions, creating extra work during a highly stressful time.

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“If you don’t have everything prepared, you’re leaving your loved ones with a mess and leaving yourself unprotected,” says Mary Kate D’Souza, chief legal officer at Gentreo, a digital estate planning service. For example, the court may pick someone you don’t trust to make decisions on your behalf. Your assets could go to people you haven’t spoken to in years.

Despite the importance of establishing an estate plan, only 32% of Americans reported having one, according to a 2024 survey for Caring.com, an online review site for caregiving services. The number of Americans with an estate plan has fallen since 2023 — the first decline since 2020, when the COVID-19 pandemic made estate planning feel more urgent.

That decrease is unfortunate, because “we’re just one car accident or fall away from having to rely on others,” says Bruce Tannahill, a director of estate planning for MassMutual. With a solid estate plan, you can rest easier knowing you are prepared for the worst.

Key components

An estate plan is a combination of legally binding documents that outline your instructions and desires to “protect your voice when you can no longer speak,” says Lindsay Graves, an elder-law attorney in North Canton, Ohio.

Each document plays a different role. A complete estate plan should include the following.

Living will. A living will lays out your desires for medical care. Are there any treatments that you’d refuse, such as artificial nutrition through feeding tubes or blood transfusions? How aggressively do you want doctors to manage end-of-life care, such as when you’re alive but will never regain brain function?

If you have no documents in place, doctors typically will do whatever it takes to keep you alive, even if that care is more aggressive and invasive than you’d like. In addition, loved ones may be required to make these end-of-life decisions. “It’s such a difficult decision to ask someone else to make. They always feel like they killed the person,” Graves says.

Health care power of attorney. A health care power of attorney (POA) names someone to make medical decisions on your behalf when you cannot. That individual serves as your health care agent/proxy, communicating with the doctors and deciding what course of treatment is best based on what they think you would want and the instructions in your living will.

If you don’t name a health care proxy ahead of time, your loved ones will need to go to court to be legally assigned this role, which could become contentious if they disagree with one another about your wishes.

The Terri Schiavo case in Florida is a famous example. In 1990, 26-year-old Schiavo suffered cardiac arrest and fell into a vegetative state. Schiavo had never shared her wishes for care in such a situation, and for years, her husband and parents fought in court over whether she should stay on life support. She died in 2005 after courts ruled that doctors could remove her feeding tube.

Even if your family members are on the same page, they’ll be locked out of guiding your medical care while they seek legal authority to make decisions on your behalf. For that reason, every adult should have these health care documents set up, D’Souza says. “You might still be paying for your 19-year-old child’s health insurance, but you still need legal permission to make health care decisions for them.”

Financial power of attorney. A financial power of attorney names someone to manage your money when you’re unable to do it yourself. Typically, your named agent will be allowed to access your financial accounts to pay your bills and manage your assets. Once again, if you don’t pick someone ahead of time, the courts will decide for you. “It might end up being the last person you would ever trust with your money, like your child with drug problems,” D’Souza says.

When you set up a financial power of attorney, you decide whether you want it to be effective immediately or to take effect if you’re declared incapacitated. Although you might not want the other person to have access to your money until you need help, this can create problems down the line. “I had a case where a woman needed to use her mom’s POA because she had dementia, but she could fake it through a competency test,” Graves says. As a result, the daughter had a hard time getting permission to manage her mother’s money.

One alternative is to set up the POA to be effective immediately and store the document in a safe place, such as a locked file cabinet in your home office, where the other person will access it only when you need help.

Last will and testament. A last will and testament explains who should inherit your assets. It also names an executor to oversee the distribution of your final estate and pay any last bills. If you have minor children or other dependents, you should also use this document to designate who will take over as their guardian. For this reason, creating a will makes sense even if you don’t have a lot of property.

If you die without a will, known as dying intestate, the courts will distribute your assets to your closest family members according to state law. For example, New York intestate law says the money will go to your spouse and children, then your parents if you don’t have a spouse or children, then your siblings and so on down the family line. The money won’t go to charity, a friend or anyone else unless you lay out those instructions in a will.

You can create these documents with an estate planning attorney. Expect to pay between $1,000 and $3,000, depending on the complexity of your situation. You could also use an online estate planning service.

Transferring assets smoothly

A basic will is a good start toward leaving an inheritance, but there are additional steps you can take to save time, taxes and trouble for your loved ones.

Avoid probate. When you pass away, the courts will review your will and distribute property according to the instructions through a process called probate. Probate can take months and require considerable legal expenses, depending on the state.

Probate is also public. Others can see what you’re passing along and challenge the decisions in probate court. For example, an estranged sibling could try to claim some of your assets.

You could avoid these problems by reducing the assets transferred at probate. One option is to set up a transfer-on-death designation on assets such as real estate, vehicles, bank accounts and brokerage accounts. The accounts transfer directly to your heirs without going through probate.

Another option is to set up a revocable trust. You control assets in the trust while you’re alive. When you die, the assets pass through the trust to the named beneficiaries, avoiding probate. One advantage of a trust over TOD designations is that you can store all of your accounts in one place. In addition, a trust is private and offers protection against creditors. If an heir has financial problems or is facing a divorce, the trust could preserve their inheritance.

Finally, you could use a trust to control how and when assets are distributed after you die. Rather than leaving a large inheritance to your 18-year-old grandchild, for example, you could set up the trust so your grandchild gets the funds only after completing college or turning 25.

Update beneficiary designations. Some financial accounts, such as life insurance policies, annuities and retirement plans, are transferred to your heirs by a beneficiary designation rather than through your will. The accounts go straight to the beneficiary and avoid probate.

Beneficiary instructions take precedence over your will. If you fail to update your beneficiaries, your money could go to the wrong person, such as an ex-spouse, even if your will states otherwise, says Bryan Bell, a certified financial planner with First Horizon Advisors in Brentwood, Tenn. You should update your beneficiary designations whenever you undergo a major life change, such as marriage, the birth of a child, divorce or the death of a spouse.

Plan for taxes. Most families don’t have enough assets to be concerned with federal estate taxes. In 2025, you can leave up to $13.99 million to heirs without triggering federal estate taxes, or $27.98 million for married couples. However, 17 states and Washington, D.C., also charge estate and inheritance taxes, some with much lower thresholds. Oregon taxes estates that exceed $1 million, and Massachusetts taxes estates that exceed $2 million.

You could potentially minimize estate taxes by transferring property during your lifetime, either by making gifts to your loved ones or by placing property in an irrevocable trust. You can’t take assets back from an irrevocable trust, but it removes the property from your estate for taxes. If your estate is potentially large enough to trigger federal or state taxes, talk to an estate attorney about your options.

Special situations

Most laws related to estate planning are designed for a traditional nuclear family: a married couple with adult children. However, a growing number of American households don’t fit this definition. Singles, unmarried couples and couples without children have additional estate plan issues to address to make sure their wishes are honored.

Childless couples. Spouses will likely choose each other to inherit property and handle roles such as the financial agent and health care proxy. However, it makes sense to list a backup, too. “What happens if you’re in a car accident together?” Graves asks.

You could name a sibling or friend, but if they’re about your age or older, they may no longer be physically able to handle the role when needed, or they could predecease you. Consider naming a younger family member, such as a niece or nephew.

You should also decide where your assets will go after you and your partner die, especially if you want money to go to charity or someone who is not a member of your family. If you don’t lay this out in your will, the courts will automatically give everything to your closest living relatives.

Unmarried couples. Estate planning is even more critical for unmarried couples because, in the eyes of the courts, they have no legal connection to each other. If one person becomes incapacitated, their partner may not have the right to make their medical decisions. Estate planning documents can protect your ability to care for each other.

The same applies to the distribution of your assets. Your unmarried partner won’t inherit the property unless you name them in your will and beneficiary designations.

Beware state estate and inheritance tax laws, too. For example, New Jersey charges taxes based on relationships. While spouses and civil-union partners do not pay inheritance taxes, unmarried couples can pay up to 16% for transferring property to each other at death. Start thinking about strategies to avoid these taxes, such as gifting assets to your partner while you’re alive.

Singles. If you’re single, divorced or a widow(er) without children, you may have to give some extra thought to who will make health care and financial decisions on your behalf. You could, for example, name a family member or a close friend.

Make sure you select someone who is well positioned to take on the responsibility and that they are aware you chose them to do it. “If you name your nephew who lives across the country, he might not realize you’re incapacitated and that you picked him for these roles until it’s too late,” says Fresard from Simasko Law. Because this role can be a big responsibility, you could let the relative or friend know they will be compensated by inheriting part of your estate.

Consider who you would like to inherit your money, especially if it’s a charity or friend. If you don’t clarify your wishes in your will, the money will go to the closest living relative, which could be a distant cousin you haven’t seen in years.

Parents of a child with a disability. If you have a child with a severe disability who receives government support, you need to be very careful about how you provide for them after you die. Government programs such as Medicaid and Supplemental Security Income have extremely low asset limits for eligibility. Your child could be disqualified simply for owning more than $2,000 of cash and other assets outright.

Instead of leaving money to a disabled child directly, you could pass along property using a special-needs trust (SNT). Your child can receive money from the trust for vacations, entertainment, electronics and other discretionary products and services without losing government support.

You should also decide whether another family member or professional guardian will take care of your child after you die. “It’s a huge ask to have someone take on this role, especially since siblings tend to move away from the family home,” Graves says. “The key is to figure it out while you’re alive rather than leaving it to the system to decide.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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