# Understanding Estates: Planning and Writing Your Will Effectively

## What Is an Estate?

An estate is everything comprising the [net worth](https://www.investopedia.com/terms/n/networth.asp) of an individual, including all land and real estate, possessions, financial securities, cash, and other [assets](https://www.investopedia.com/terms/a/asset.asp) that the individual owns or has a controlling interest in.

Estate planning is crucial for asset transfer to beneficiaries after death and for minimizing taxes. Part of estate planning is drawing up a will, which is a legal strategy for managing estate distribution and appointing executors. The importance of estate planning is particularly relevant if the individual declares bankruptcy or if the individual dies.

### Key Takeaways

*   An estate includes everything an individual owns, like property, investments, and personal belongings.
*   Estate planning involves deciding how an individual's assets will be distributed after death.
*   Wills provide instructions on the distribution of assets and care of minors after death.
*   Probate is a legal process to validate a will and administer the deceased's estate.
*   Inheritance taxes can be high, making estate planning crucial to minimize the tax burden.

## Comprehensive Overview of Estates

The word _estate_ is colloquially used to refer to all of the [land and improvements](https://www.investopedia.com/ask/answers/100214/what-difference-between-real-estate-and-real-property.asp) on a vast property, often a farm or homestead, or the historic home of a prominent family. However, in the financial and legal sense of the term, an estate refers to everything of value that an individual owns—[real estate](https://www.investopedia.com/terms/r/realestate.asp), art collections, antique items, investments, insurance, and any other assets and entitlements—and is also used as an overarching way to refer to a person's net worth. Legally, a person's estate refers to an individual's total assets minus any liabilities.

The value of a personal estate is of particular relevance in two cases: if the individual declares bankruptcy and if the individual dies. When an individual debtor declares bankruptcy, their estate is assessed to determine which of their debts they can be reasonably expected to pay. Bankruptcy proceedings involve the same rigorous legal assessment of an estate that also occurs upon an individual's death.

Estates are most relevant upon the death of an individual. [Estate planning](https://www.investopedia.com/terms/e/estateplanning.asp) is the act of managing the division and inheritance of your personal estate and arguably represents [the most important financial planning](https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp) of an individual's life. It's important to keep in mind that every country has specific rules about passing on wealth, the allowed amounts, and the [approved estate planning trusts](https://www.investopedia.com/articles/retirement/08/estate-planning-canadians-canada.asp).

 People usually create a will to explain how they want their estate divided after they die. A person who receives assets through inheritance is called a [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp). 

## Managing and Distributing Estates

In almost all cases, estates are divided among members of the deceased's family. This passage of wealth from one generation of a family to the next has a tendency to entrench income in certain social classes or families. Inheritance accounts for a massive proportion of total wealth in the United States and around the world and is in part responsible for persistent income inequality (though there are, of course, many other factors).

Partially as a response to the stagnation of wealth movement as a result of inheritance, most governments require those in line for an inheritance to pay an [inheritance tax](https://www.investopedia.com/terms/i/inheritancetax.asp) (estate tax) on the estate. This tax can be very large, sometimes requiring the beneficiary to sell some of the inherited assets to pay the tax bill.

> **Important**
>
> In the U.S., assets of an estate left to a spouse or a charity are generally not taxed.

It is generally advisable for both the individual drafting the will and the beneficiaries of an estate to [employ the services of estate attorneys](https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp). Inheritance taxes are notorious for their complexity and exorbitance, and the use of an attorney helps ensure that your inheritance taxes are paid correctly. On the drafting end, several measures can be taken to minimize the amount of tax one's beneficiaries will have to pay, for example, setting up [trusts](https://www.investopedia.com/terms/t/trust.asp).

## Crafting a Legally Binding Will

A [will](https://www.investopedia.com/terms/w/will.asp) is a legal document created to provide instructions on how an individual’s property and custody of minor children, if any, should be handled after death. The individual expresses their wishes through the document and names a trustee or [executor](https://www.investopedia.com/terms/e/executor.asp) that they trust to fulfill the stated intentions. The will also indicates whether a trust should be created after death.

Depending on the estate owner’s intentions, a trust can go into effect during their lifetime ([living trust](https://www.investopedia.com/terms/l/living-trust.asp)) or after the death of the individual ([testamentary trust](https://www.investopedia.com/terms/t/testamentarytrust.asp)).

The authenticity of a will is determined through a legal process known as [probate](https://www.investopedia.com/terms/p/probate.asp). Probate is the first step taken in administering the estate of a deceased person and [distributing assets to the beneficiaries](https://www.investopedia.com/terms/w/waiver-of-notice.asp). When an individual dies, the custodian of the will must take the will to the probate court or to the executor named in the will, typically within 30 days of the death of the testator. However, it varies by state. For example, Florida requires a will to be filed within 10 days of being notified of the death.

The probate process is a court-supervised procedure in which the authenticity of the will left behind is proven to be valid and accepted as the true last testament of the deceased. The court appoints the executor from the will, giving them the legal power to act for the deceased.

> **Article Sources**
>
> 1.  Justia. “[Estate Tax Law](https://www.justia.com/estate-planning/asset-protection/estate-taxes/).”
>     
> 2.  American Bar Association. “[Introduction to Wills](https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/intro-wills/).”
>     
> 3.  Florida Legislature. “[732.901 Production of Wills](http://leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0732/Sections/0732.901.html).”
>     
> 4.  American Bar Association. “[The Probate Process](https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/probate-process/).”