You work hard all of your life to make ends meet, and if possible, set aside money for people you care about. Developing an estate plan can help ensure that your wishes are carried out after you're gone.

An "estate" refers to the value of all the assets you own. Such tangible assets may include investment securities, real estate, bank accounts, and the value of life insurance policies, among others.

An estate plan may be created to manage your assets should you become disabled during your lifetime. An estate plan can also outline how your assets will be distributed after your death and who will be put in control of the estate. Without an estate plan, the courts may take control of your estate and distribute your assets as they see fit.

During 2007 and 2008, federal tax law allows you to transfer $2,000,000 to designated beneficiaries at the time of your death without owing any federal estate taxes. What this means is that if your were to die this year and your estate is worth more than $2.000,000, you'll incur estate taxes on any amounts in excess of $2,000,000.

Under current federal estate tax laws, this so-called estate tax exclusion is scheduled to rise to $3,500,000 in 2009, then be repealed entirely in 2010, only to be reinstated in 2011 at 2001 levels.

There are several ways to reduce the value of your estate, including annual tax-free gifts of $12,000 to anyone you wish. With some forward planning, your beneficiaries can enjoy their gifts sooner, and Uncle Sam won't get as much of your hard-earned estate.

You can also reduce income and estate taxes by putting assets into an irrevocable living trust. A trust is an agreement in which you (the grantor) transfer your estate to somebody else (the trustee) for the purpose of benefiting one or more third parties (the beneficiaries).

Income taxes on revenue-generating assets placed in the irrevocable living trust are paid by the trust itself, not by you. In addition, the assets in the trust are not considered part of your estate and are therefore not subject to estate taxes when you die. However, "irrevocable" means that generally you cannot change beneficiaries or trustees once they are chosen, and you relinquish control of your assets once they are placed in the trust.

Estate planning can help you secure the future of your beneficiaries. But determining your best course of action also requires a comprehensive evaluation of your financial situation and long-term goals. Be sure to consult your tax advisor or attorney to determine the level of estate planning that is appropriate for your situation.

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