Your Quickie Reference Guide to Estate Planning

Even though most estates won't owe Uncle Sam, estate planning is essential for protecting you and your loved ones.

Most important? Providing for minor children. Your will should name both a guardian and a financial trustee for your kids in case you and your spouse die.

What else should -- and shouldn't -- be in a will or trust?   If you don't designate beneficiaries, the state will decide how to split up your estate, which can be time-consuming.  A simultaneous death clause will pass your estate to your children if your spouse dies shortly after you do.

Many states require that a third or half of your estate goes to your spouse, even if your will specifies a smaller share.

If you want children from a prior marriage to benefit from your estate, don't leave everything to your current spouse. A bypass trust provides regular income for a surviving spouse until death. Then the assets go to the children.

If you want to avoid the time and expense associated with probate administration – choose a revocable living trust rather than relying solely on  a will.

If you want to disinherit a child, spell that out in the will and/or Trust.

Avoid tying bequests to an heir's behavior.   A spendthrift trust control how money is distributed so an irresponsible heir can't blow it all at once.

Keep current the designated beneficiaries on retirement and life insurance accounts so those assets don't become a part of your will. A 401(k) automatically passes to the surviving spouse unless that spouse has signed a waiver.

Consider reducing your estate tax liability by giving away assets before you die, holding them in joint tenancy or transferring ownership to a trust. You can gift as much as $12,000 annually to as many people as you want, and you can pay someone's education and medical expenses directly to the providing institution, without triggering federal gift tax.

Review your will -- and life insurance -- after major life changes.   If you remarry, consider a prenuptial agreement. If you move, remember that estate laws vary from state to state.

Now, more about taxes. In 2007 and 2008, only the portion of an estate over $2 million is subject to federal estate tax. The threshold rises to $3.5 million in 2009 before the tax disappears in 2010. It will return in 2011 with a $1 million threshold unless Congress decides otherwise.

According to the IRS, only the wealthiest 2% pay federal estate tax. Some states have an estate tax as well as inheritance tax paid by heirs.

Assets left to a spouse aren't included in the taxable estate. Other deductions include charitable gifts, debt, funeral expenses and the cost of settling the estate.

Estate-tax obligations can be reduced in several ways, including a bypass trust, an irrevocable-living trust, a life insurance trust and a charitable-remainder trust.

Prepare a durable power of attorney for finances, a living will and, because living wills aren't always enforceable, a proxy for health care.   Also consider a living trust.

It’s important to see an attorney to determine which of the above applies to you and which estate planning tool best suits your ultimate goals.   Avoid do it yourself programs and cheap documents prepared by paralegals.   Make sure that your final wishes are fulfilled and that you do so in the most efficient manner possible with the right estate planning tool.