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Estate Planning

What comes to mind when you hear the term estate planning?

If you are like many people, you know it has something to do with having a will. You would also be correct if you said it involves making certain other types of arrangements affecting what happens to your property once your life has ended.

A good estate plan goes further and addresses many aspects of your current situation, as well as how to thrive in the years to come. Consider this definition:

Caring for yourself and your assets while you are living, and providing for the transfer of assets to other persons and entities – both during your life and afterwards.

Why create an estate plan?

Very few people wake up in the morning and wish they could spend the day working with their attorney to develop an ‘estate plan.’ However, creating (or updating) a plan is among the most important things you can do.  Estate plans help you to:

  • Ensure the property you have accumulated over your lifetime goes exactly where you want it to go and when. If you don’t have a will or living trust, the state in which you reside has a distribution plan for you which may or may not be in accordance with your wishes.
  • Give directions to be followed in case you become incapacitated and cannot make decisions for yourself.
  • Organize your affairs and designate who will handle them when you are gone.
  • Appoint a guardian for any minor children.
  • Provide for any special needs your loved ones may have.
  • Minimize possible estate taxes and costs.
  • Specify the type of funeral arrangements you would like.
  • Remember and provide for friends, pets, and organizations you care about, but are never a part of the default state distribution scheme.

By planning, you also make things easier for your family. If something happens to you, it will be a very difficult time for your family members and other loved ones. How wonderful it would be if they knew exactly what you wanted to have happen and have the means at hand to follow your wishes. Consider the planning you do now to be your final future gift to your loved ones.

While estate planning can entail some difficult choices and may mean confronting uncomfortable issues, it does provide a sense of relief and peace of mind when it is done. You will know that you have done your best to plan and provide for yourself and for your loved ones, as well as the causes you value during your lifetime. There is great satisfaction in knowing what your legacy on earth will be. 

The Key Elements of an Estate Plan

Expression of your final wishes

  • Last Will and Testament. A valid will is generally typed, dated, and signed by you as well as two legally competent witnesses. States differ as to whether a handwritten will, with or without witnesses, is valid.
  • Revocable Living Trust. This may replace the will as the main document disposing of your property. You might hear it referred to as a “living trust” or “RLT.”  The trust is created while you are living, most often people serve as their own trustee, and the power to change and even revoke it during your lifetime can be retained. A living trust requires that you transfer some or all of your property into it for it to be effective.

Typically, if a living trust is recommended your estate planning lawyer will also suggest a will as a backup document, to transfer any assets that weren’t included in your trust at the time of your death.

  • Beneficiary Designations. These are the forms you fill out when you open a stock brokerage account, establish an IRA or other type of retirement plan, or purchase a commercial annuity or life insurance policy. They indicate who will receive the remaining property upon your death (or the death benefit in the case of life insurance). These can have a profound impact on how your overall estate is distributed and should be part of any coordinated plan.

Provide for physical or mental incapacity

  • Power of Attorney (POA) for financial matters. This document grants to someone you trust the ability to act on your behalf for a variety of potential transactions and responsibilities. When the POA becomes effective and the extent of the authority granted can be tailored to your particular desires.
  • Health Care Power of Attorney. This document appoints someone to make decisions for you regarding medical treatment if you are not able to do so. It allows you to specify who is in charge of making critical treatment decisions and, perhaps more importantly, who does not have that authority.
  • Health Directive.  Sometimes referred to as an “advance directive” or “living will” (not to be confused with a living trust), this document specifies the type of end-of-life treatment you want to receive. It is a directive to the physicians treating you and for the person holding your Health Care Power of Attorney.
  • Physician’s Order for (i.e., regarding) Life Sustaining Treatment (POLST). This allows for your doctor, working with you, to document for the benefit of health care providers your wishes regarding resuscitation and other life sustaining procedures. The availability of this document may depend upon the law of the state of your residence.

Managing and Distributing Your Wealth

You might conceive of the estate planning process as constructing a pyramid from the ground up. First and foremost, you want to do what you can to ensure your own well being. In so doing, keep in mind that it is not selfish to look out for yourself! Only by meeting your own needs now and in the future are you able to build the next level of the pyramid.

If you are fortunate enough to accomplish some important basics, you are then in a position to provide for family members and other loved ones. Thereafter, if you have the desire and the means, it becomes appropriate to think about a legacy you can leave for the wider world.

We hope that you will consider arranging a gift to Carnegie Mellon when you set up (or update) your estate plan. We realize that we will never replace family members and other loved ones in your plans, and we would not want to. Part of your planning process is to consider how much to leave to individual heirs; what remains can be used to fulfill your charitable dreams and desires.

How much to leave to children and grandchildren is a judgment call.  Some parents transfer as much of their estates as possible to heirs. Others fear that transferring too much wealth may discourage productivity and undermine self-esteem. A memorable line from the movie The Descendants encapsulates this debate nicely: “…you [want to] give your children enough money to do something, but not enough to do nothing.”  Still others realize that the community and world they leave to their children and grandchildren is also part of their legacy.

If you would like to support Carnegie Mellon through your will or living trust, click here for sample bequest wording you can share with your attorney. Or consider a gift by beneficiary designation (aka “bequest substitutes”)  - it has many of the same advantages while being among the most tax-wise ways to give.