Authored by H. Clare Callow in Personal Finance 
Published on 07-17-2009

As with anything financial, the planning of your estate is a very personal business. With inheritance taxes creeping up, estate planning is becoming even more important.

The way you plan the disposal of your estate should change as time goes by. Having a solid estate plan in place while your children are still at home is vital, to ensure their continued care should something happen to you and your partner.

How much you should save will depend on your household income. If you have a low-to-medium income, your estate planning will be slightly easier. Most heavy state taxes kick in on estates over $1 million. If you are likely to leave this sum when you are gone, consider hiring an attorney who specializes in estate planning, as they will be familiar with the available loopholes in your local state laws.

Not all estate planning is about money, however. It is important for you to plan out your living will and decide on who to give your durable medical power of attorney. Remember that a living will is very different to durable medical power of attorney. A living will covers your wishes for end-of-life decisions, while a durable medical power of attorney gives all medical decision-making authority to one person, should you become incapacitated. You may want both, so that you can have control over ending your life while entrusting other decisions to a close friend. Sometimes you may entrust all decisions to your medical power of attorney. Plan these aspects of your estate as soon as you can, because they affect how you will live if something unexpected happens.

Good estate planning should minimize taxes and fees, and should also set up contingency plans for different circumstances. This is why it is worthwhile consulting a specialist attorney. They will be able to advise you on the different options you have. Some of these options include:

• Setting up a qualified personal residence trust. This allows you to gift your children with your house while you still reside in it, and attracts lower gift taxes.
• Using a life insurance trust to pay estate taxes. The US tax code doesn’t tax life insurance as income, as long as the beneficiary is set up through a trust vehicle.
• Setting up trusts to provide income to your loved ones while avoiding some taxes.

Some families avoid estate taxes by dispersing their estate before they die. This can be a good way to ensure your children and loved ones receive the things you wish them to receive, but it does present some problems. This method doesn’t completely avoid tax payments. It also presents a difficulty when trying to estimate your income for retirement – you don’t want to be left short.

Remember to review your estate planning every time your circumstances change significantly. This means going over your plans with the birth of each new child, as the children leave home, and if you get a divorce. Your estate plan should be up-to-date. Although no-one likes to think about such things, a death can happen at any time and it is worthwhile to be prepared.