If you're like most people, you probably think estate planning is reserved for the elderly and the wealthy. But the simple truth is we all need to do some type of estate planning - whether it's as basic as writing up a will or a more elaborate plan involving trusts and tax shields. Following is an overview of estate planning basics.

An estate plan helps provide security for your loved ones by ensuring that your assets are preserved and distributed according to your wishes when you die. A will, a document that states how your assets will be distributed and who will care for dependent children when you die, forms the cornerstone of your plan. And, if you die without one, your estate will be divided according to the laws of your state - not according to your wishes.

In some cases, a will alone may not be sufficient to ensure the transfer of assets to your heirs - particularly if they are minors. Then a trust may be in order. A trust is a legal agreement whereby you appoint a trustee to administer the estate for the benefit of one or more beneficiaries.

Different types of trusts accomplish different things. For example, a revocable trust holds assets outside the will and can be changed or modified as circumstances warrant. As the name implies, an irrevocable trust cannot be changed, while a living trust allows you to maintain control over your assets by being both trustee and beneficiary while you are alive.

Over the past decade, legislation enacted in Washington D.C. has loosened up federal estate tax rates so that Americans can pass along more to their heirs free of estate tax. The current federal estate tax exclusion is $2,000,000 per person for 2007. It's scheduled to rise to $3,500,000 in 2009, and then, in 2010, federal estate taxes will be completely repealed, only to be reinstated to 2001 levels in 2011 and beyond. That said, having a plan that keeps up with these changes is more important than ever.

Estate planning is one of the more complicated parts of your lifelong financial plan. If you already have an estate plan, now is a good time to make adjustments that reflect the more favorable tax laws. Or if your new to estate planning, speak with an attorney or financial adviser who can help you develop a plan that works for you and your family.

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