After almost twenty years in the financial services industry, I can tell you firsthand as an attorney that estate planning is the most overlooked, misunderstood and procrastinated piece of the financial plan for most families. I can also tell you from experience why that’s usually the case: most people think putting together an estate plan is a lot more complex, costly and time-consuming than it almost always turns out to be. In fact, with just a little focus of time and resources, a family can save itself thousands of dollars and countless hours of time wasted in picking up the pieces after the death of a loved one because a viable estate plan was never put in place.

This article is part one in a short series on the aspects of estate planning. Today, we’ll touch on the very basics and will feature two important documents – the will and the trust. In a few follow-up articles, we’ll take a deeper dive into issues regarding taxes, gifting, beneficiaries, and we’ll look at which ancillary documents, in addition to wills and trusts, round out the “basic set” of estate planning documents for most families.

Before we start discussing the basics of estate planning, we should first clarify what an “estate” is. How can you plan for something if you don’t know if you have it to start with, right? The short answer is that if you own something of value that you would pass onto someone else upon your death, then you have an estate. As you can see, this means that just about every one of us has an estate.

Do I really need to put a “plan” in place for my estate? The answer is yes, absolutely. In fact, one of the main reasons to put an estate plan together is to replace the estate plan that’s already been established for you by your state of residency. Most of us don’t realize that every state has its own rules in place that spell out what happens to the assets of its residents who die “intestate”, that is without at least a properly executed will in place. The intestacy transfer provisions in most states are shockingly simplistic and basic because the state wants the government agent in charge of administering these assets to do so quickly and easily. Trust me on this one, the way your state will divide up your property if you die without at least a properly executed will in place is not the way you’d want it done. But, if you fail to put a plan in place, that’s exactly what’s going to happen.

The primary document used in an estate plan is the will. It’s the foundational document – the beginning and ending point. However, a close second is the trust, which is often effectively used to complement the will.

A will is a simple document in which you, as the will maker, or “testator”, spell out who gets your assets at your death. However, a will only transfers property that you own in your name alone. Property owned jointly with someone else and assets like IRAs and life insurance policies, which have their own beneficiary provisions spelled out in the account documents, pass according to those provisions and don’t pass through the will.

A simple will is relatively inexpensive to have drafted, but the price varies somewhat depending on the complexity of the planning and the size of the estate in question. Because a will doesn’t become legally enforceable until your death, it has no true legal “power” while you’re alive. This is why you can change your will any time, and as many times, as you want to, assuming you have the mental capacity to do so.

A properly executed will includes instructions for your personal representative, or “executor” to follow with regard to your wishes. This person is responsible for administering your estate, basically making sure the right property gets to the right place. Wills also commonly include provisions in which the testator designates a guardian for minor children under his/her care, or for others unable to fully care for themselves. Property may be passed to persons or other entities, including charities, which may help in minimizing estate taxes. A will helps the testator know that his wishes regarding his assets and the persons under his care are known and are more likely to be carried out, which should give the testator more peace of mind, one of the main benefits of estate planning in the first place.

The second document we’ll look at is the trust. Simply put, a trust is an account that is managed by one party for the benefit of another. Every trust has three parties: the trust maker, or “grantor”, who funds the trust, the “trustee”, who manages the trust assets for the benefit of another, and the “beneficiary”, the person or entity who benefits from the use of the trust assets. Trusts come in several forms and are created to address a multitude of needs, but usually the grantor sets up a trust for one or more of the following reasons: to make managing the trust assets easier, to minimize gift and estate taxes, and to make distribution of the trust assets to the beneficiaries more customized, more efficient, less expensive and less public.

A trust contained within a will is a testamentary trust, and its provisions, just like those of the will itself, don’t become operative until the death of the grantor/testator. A living (or inter vivos) trust, on the other hand, is a trust that’s created apart from a will and becomes operative during the lifetime of the grantor. It’s this “living trust” that can serve as a great complement to the will in an estate plan.

Living trusts are flexible and powerful at the same time. As grantor of a living trust, you can name yourself as the trust’s trustee, meaning you retain ownership and control over the trust, its terms and assets during your lifetime. Also, the grantor is usually allowed to modify the trust’s provisions any time, and has the power to even dissolve the trust entirely. While maintaining all of this flexibility and control, the grantor can use the trust to transfer assets to beneficiaries that would otherwise pass through his will, thus avoiding probate for those assets. However, the assets in a living trust are treated just like other assets owned by the grantor during his lifetime, and are usually still subject to estate tax consideration. In most cases, even if a living trust is established, the grantor should still have a will in place to ensure that any asset not covered in the trust is effectively transferred at his death.