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Process of planning for inheritance of property

Estate planning is the process of anticipating and arranging for the management and disposal of a person's estate during the person's life in preparation for a person's future incapacity or death. The planning includes the bequest of assets to heirs, loved ones, and/or charity, and may include minimizing gift, estate, and generation skipping transfer taxes. Estate planning includes planning for incapacity, reducing or eliminating uncertainties over the administration of a probate, and maximizing the value of the estate by reducing taxes and other expenses. The ultimate goal of estate planning can only be determined by the specific goals of the estate owner, and may be as simple or complex as the owner's wishes and needs directs. Guardians are often designated for minor children and beneficiaries with incapacity.

Estate planning may involve a will, trusts, beneficiary designations, powers of appointment, property ownership (for example, joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gifts, and powers of attorney (specifically a durable financial power of attorney and a durable medical power of attorney). More sophisticated estate plans may cover deferring or decreasing estate taxes or business succession.

Wills are a common estate planning tool, and are usually the simplest device for planning the distribution of an estate. It must be created and executed in compliance with the laws of the jurisdiction where it is created. If probate proceedings occur in a different jurisdiction, it is important to ensure that the will complies with the laws of that jurisdiction, or that the jurisdiction will follow the provisions of a valid out of state will even if those provisions might be invalid for a will executed in that jurisdiction.

A trust may be used as an estate planning tool to direct the distribution of assets after the person who creates the trust passes away or becomes incapacitated. Trusts may be used to provide for the distribution of funds for the benefit of minor children or developmentally disabled children. For example, a spendthrift trust may be used to prevent wasteful spending by a spendthrift child, or a special needs trust may be used for developmentally disabled children or adults. Trusts offer a high degree of control over management and disposition of assets. Furthermore, certain types of trust provisions can provide for the management of wealth for several generations past the settlor. Typically referred to as dynasty planning, these types of trust provisions allow for the protection of wealth for several generations after a person's death.

An estate plan may include the creation of advance directives, which are documents that direct what will happen to a person's personal care if the person becomes legally incapacitated. For example, an estate plan may include a healthcare proxy, durable power of attorney, and living will. After widespread litigation and media coverage surrounding the Terri Schiavo case, estate planning attorneys often advise clients to also create a living will, which is a form of an advance directive. Specific final arrangements, such as whether to be buried or cremated, are also often part of estate plan documents.

Income, gift, estate, and generation skipping transfer tax planning plays a significant role in choosing the structure and vehicles used to create an estate plan. In the United States, assets left to a spouse who is a U. S. citizen or any qualified charity are not subject to U. S. Federal estate tax. Assets left to any other heir, including the decedent's children, may be taxed if that portion of the estate has a value in excess of the lifetime gift, estate, and generation skipping transfer tax exemption amount. As of 2023, the federal exemption amount was $12,920,000. For a married couple, the combined exemption is $25,840,000.

One way to minimize or avoid U. S. Federal gift, estate and generation skipping transfer taxes is to distribute the property in incremental gifts during the person's lifetime. Individuals may give away as much as $17,000 per year (in 2023) to another person without incurring gift tax or using up any of their lifetime exemption amount. Other tax free alternatives include paying tuition expenses or medical expenses free of gift tax, but only if the payments are made directly to the educational institution or medical provider. Other tax advantaged alternatives to leaving property, outside of a will, include qualified or non qualified retirement plans (e. g. 401(k) plans and IRAs) certain "trustee" bank accounts, transfer on death (or TOD) financial accounts, and life insurance proceeds. Because life insurance proceeds generally are not taxed for U. S. Federal income tax purposes, a life insurance trust could be used to pay estate taxes. However, if the decedent holds any incidents of ownership like the ability to remove or change a beneficiary, the proceeds will be treated as part of decedent's estate and generally will be subject to the U. S. Federal estate tax. For this reason, a trust vehicle often is used to own the life insurance policy. The trust must be irrevocable to avoid taxation of the life insurance proceeds, and it typically called an irrevocable life insurance trust (or ILIT).

Although legal restrictions may apply, it is broadly possible to convey property outside of probate, through such tools as a living trust, forms of joint property ownership that include a right of survivorship, payable on death account, or beneficiary designation on a financial account or insurance policy. Beneficiary designations are considered distributions under the law of contracts and cannot be changed by statements or provisions outside of the contract, such as a clause in a will. In the United States, without a beneficiary statement, the default provision in the contract or custodian agreement (for an IRA) will apply, which may be the estate of the owner resulting in higher taxes and extra fees. Generally, beneficiary designations are made for life insurance policies, employee benefits, (including retirement plans and group life insurance) and Individual Retirement Accounts. Identity: A specific, identifiable individual or business must be designated as beneficiary for life insurance policies. Businesses may not be the beneficiary of a group life insurance policy or a retirement plan. Contingent beneficiary: If the primary beneficiary predeceases the contract owner, the contingent beneficiary becomes the designated beneficiary. If a contingent beneficiary is not named, the default provision in the contract or custodian agreement applies. Death: For retirement plan assets, at the account owner's death, the primary beneficiary may select his or her own beneficiaries if the remaining balance will be paid out over time. There is no obligation to retain the contingent beneficiary designated by the IRA owner. Multiple accounts: A policy owner or retirement account owner can designate multiple beneficiaries. However, retirement plans governed by ERISA provide protections for spouses of account holders that prevent the disinheritance of a living spouse.

Mediation serves as an alternative to a full scale litigation to settle disputes. At a mediation, family members and beneficiaries discuss plans on transfer of assets. Because of the potential conflicts associated with blended families, step siblings, and multiple marriages, creating an estate plan through mediation allows people to confront the issues head on and design a plan that will minimize the chance of future family conflict and meet their financial goals.

Inheritance law in Canada is constitutionally a provincial matter. Therefore, the laws governing inheritance in Canada is legislated by each individual province.

In the United States, the process of estate planning is regulated. The U. S. law of estate planning overlaps to some degree with elder law, which additionally includes other provisions such as long term care.