Estate Planning

A type of agreement where a person decides who will own and manage their assets once the person is deceased or incapacitated

What is Estate Planning?

Estate planning is a type of agreement where a person decides who will own and manage their assets once the person is deceased or incapacitated. Estate planning is important, as it eliminates the burden of legal heirs having to bear the taxes of transferring the assets had the estate not been planned. In case the beneficiary is a minor, a guardian is assigned until the minor becomes 18 years old.

Estate Planning


  • Estate planning helps an individual to plan on who will own or manage their assets when they are alive or after their death.
  • The beneficiaries have their burden reduced as the transfer and other taxes are reduced, which reduces the amount of money being taken away from the estate.
  • Without estate planning, it is possible that immediate family members will be the last in the segregation of assets.

Parties Involved in Estate Planning

1. Settlor/Grantor

A settlor is an individual who creates the estate and is the owner of the assets in the estate planning. They create a trust to hold the assets on behalf of the beneficiary or legal heirs. The beneficiary can be an individual or a group of individuals.

2. Trustee

A trustee is appointed by the grantor to look after the assets in the trust. They are paid for their time and service out of the trust funds. The trusts are run like a business, where the trustee can make any revenue-generating decisions in growing the trust.

3. Beneficiaries/Heirs

Beneficiaries are the ones for whom the assets are planned for. It is stated in the agreement, which is managed by the trustee. If they find the trustee to be unfit to manage the assets, they have the legal right to replace them.

Importance of Estate Planning

Estate planning helps an individual to decide how his/her assets will be managed and owned after their death or incapacitation. It is a tax-proficient, easy way of transferring the assets to the family. Below lists reasons that estate planning is important:

1. Plan how the assets are to be segregated

In the absence of an estate trust, governments may decide on the allocation of assets. It could mean that a friend or a non-family member could get the assets ahead of the immediate family members. Hence, it is important to plan the allocation of assets so that the right people who the grantor of the estate planning deems to be the beneficiaries are allocated the assets.

2. Proficient and faster transfer of assets

Without a plan, many estates take a long time to settle, as disputes may arise among the family members on the allocation of the assets. Hence, it is important to have a plan in advance so that the estate can be transferred proficiently to the beneficiaries.

3. Plan how assets are managed during their lifetime

Estate planning can also help an individual in deciding who will manage and own the assets when the grantor is alive but is not in a position to manage the assets due to an accident or illness.

4. Reduce fees and taxes

As mentioned above, without an estate plan, there can be a lot of fees and taxes involved in the transfer and segregation of assets. Hence, with an estate plan, the grantor can reduce fees and taxes, which will help avoid more money being taken out of the estate to pay the said fees and taxes.

Types of Estate Planning Trusts

Revocable and irrevocable trusts are two of the most common types of estate planning trusts.

1. Revocable Trust

A revocable trust, as the name suggests, can be adjusted, revised, or canceled completely. These types of trusts are beneficial to the grantor, as it avoids any legal battle. However, the creditors of the grantor can have access to the estate by getting a court order.

2. Irrevocable Trust

An irrevocable trust cannot be adjusted, revised, or canceled once the grantor transfers the assets to the trust. However, the grantor can take a second to die/survivorship life insurance, where the beneficiary gets the payout only when all the insured parties are dead. Also, since the beneficiary gets the payout only on the death of the insured, it could lead to criminal offenses like murder.

Apart from revocable and irrevocable trusts, below are other types of trusts set up in estate planning:

1. Asset Protection Trust

While in a revocable trust, a creditor can get access to the estate by court order, an asset protection trust protects the grantor from this type of risk. After transferring the assets to the trust, the grantor or trust maker doesn’t become the beneficiary.

Hence, the funds are protected from any creditor attacks. Once the trust is terminated, the assets are given back to the grantor.

2. Charitable Trust

A charitable trust is beneficial to the trust maker, as it reduces or avoids paying taxes. It also helps when the trust maker owns very high-value assets. By putting the high-value assets in the charitable trust, they avoid paying huge taxes and also receive a huge payout, while a portion of it goes to charity.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

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