Step 1: What do you own?

Assets that pass through your will make up your probate estate. A will distributes only assets that are not controlled by other means, such as the survivorship provision of joint ownership (which automatically transfers ownership to the surviving joint owner) and beneficiary designations on life insurance policies, retirement plans and individual retirement accounts.

     Explore your goals. You can leave property to beneficiaries either outright or in trust. When you leave property outright, your control ends when you die. With trusts, your wishes endure. The trustee you name will manage and spend assets on behalf of the beneficiaries according to your instructions in the trust. Consider these questions:

• Do you want to leave everything to your spouse outright? Is he or she financially savvy enough to manage it? If your spouse gets it all, do you really want him or her to be the one who decides who will inherit it next? If you have been married before, do you want your current spouse to have the chance to disinherit your children from a prior marriage?
  
  

An estate plan can include a trust that will give your current spouse income and, if you desire, some principal during his or her lifetime. Then at your spouse's death the trust can channel the assets according to your wishes to your children, perhaps from a prior marriage. If your spouse is financially unsophisticated, maybe he or she could be co-trustee with a more experienced person or institution.

• If your children are minors, do you want them to have free rein over assets as soon as they reach the age of 18? A trust can dictate when a child gets control over assets, such as 25, 30 and 35.
  
  
• Are there any reasons to treat your children differently, rather than equally, such as providing special care for a permanently disabled child? Even if justified, would treating children differently cause undue friction? You can leave children different amounts outright or you can put assets in separate trusts for each child or a single trust that permits income and principal to "sprinkle" out to them as needed.
  
  
• Do you want to continue supporting a parent if he or she outlives you? An elderly parent could be one of the beneficiaries of a trust. Then after his or her death, the money could go to your spouse or children.
  
  

Passing on the business:
If a business is a major part of your estate, you have to dovetail your personal estate planning with succession planning for your business.

• Do you intend for the business to continue after you die?
  
  
• Do you have someone in training who can take over or a potential buyer in the wings?
  
  
• If you share ownership of your business, are there buy-sell/shareholder agreements in place, perhaps funded through insurance? If not, your family could wind up with an interest in a business it doesn't want, and partners could be saddled with a partner or partners they don't want.
  
  

• Name an executor
  
  
• Name guardians for your children if you and your spouse die while the children are still minors.
  
  
• Provide for the management of your assets for the benefit of your children if both spouses die.
  
  
• Name an agent for durable power of attorney for financial matters. You may decide to use a "springing" power of attorney which will take effect only if you become unable to manage your own affairs.
  
  
• Name an agent for your health care proxy. Your agent can make health care decisions for you if you are unable to make them.
  
  

Step 4: Reducing the Estate Tax

• Using a credit shelter trust. Using the marital deduction to protect your assets from the estate tax will result in not using your credit to pass as much as $675,000 to someone else tax-free. To prevent loss of the unified credit of the first spouse to die make sure each spouse has sufficient assets in his or her name to use up the credit. You may have to re-title some joint tenancy property in the name of each spouse. This plan can protect up to $1.35 million in assets for a married couple.
  
  
• Giving lifetime gifts. If you are financially secure enough to part with assets permanently, what you give away while you're alive can't be taxed when you die, at least as long as you make tax-free gifts. There is an unlimited marital deduction for gifts made between spouses that can be used to make sure each spouse owns enough to use the unified credit. You can also reduce your estate by making gifts that qualify for the $10,000 annual exclusion. If your spouse joins in the gift, the tax-free limit is $20,000, even if one spouse owns the gift assets.
  
  
• Using an irrevocable life insurance trust. Life insurance is not taxed at the death of the insured if he or she is not the owner of the policy at his or her death. An individual can cease to be the owner of a policy by irrevocably assigning the policy to a trust. An individual must live for three years after an assignment to remove the policy proceeds from his or her estate.
  
  

The above are examples of basic estate planning strategies. Larger estates require more sophisticated estate planning methods, such as qualified personal residence trusts, charitable remainder trusts, charitable lead trusts, and generation skipping transfer tax trusts.