There are certain estate planning imperatives that you should get squared away no matter what your circumstances. A will is chief among them. The other choices to the left are less obvious, but also important to make sure your affairs are dealt with as painlessly as possible.

Despite the current law calling for a complete repeal of the federal estate tax in 2010, estate tax planning remains critically important until that repeal actually occurs (if it ever does occur). Politicians have been known to change their minds, and future economic and political events could result in backsliding on the promised tax breaks. The good news is that the federal estate tax exemption amounts will increase dramatically over the next few years from $1.5 million in 2004 to $2 million in 2006, and $3.5 million in 2009. These increases are likely to stick even if the estate tax is not completely repealed as currently scheduled in 2010. Taking advantage of the higher exemption amounts and the relatively simple planning strategies explained in this section will prevent any federal estate tax hit in the vast majority of cases.

Bypass Trusts
If you're married and have assets worth more than $1.5 million, set these up for both you and your spouse. A bypass trust allows you and your spouse to take advantage of the $1.5 million federal estate-tax exemption — the maximum the IRS allows to be passed on tax-free — for a total of $3 million.

Most couples fail to execute this fairly simple maneuver because they're lulled into a false sense of security by IRS regulations that generally allow you to give everything to your spouse estate-tax-free. This so-called unlimited marital deduction simply postpones the estate tax day of reckoning when you have a large estate. When the second spouse dies, his or her estate will include both spouse's assets but there will be only a single $1.5 million exemption to keep Uncle Sam at bay. This can potentially result in $705,000 in federal estate taxes that could have been easily avoided with a bypass trust.

The beauty of the bypass trust is that although the money you leave behind is earmarked for your kids, your spouse can tap into the trust fund to meet reasonable living costs. But since the money technically "bypasses" both of your estates, it never gets hit by federal estate taxes. You'll need a lawyer to execute this trust, but it's a fairly standard procedure, and you shouldn't have to pay more than $2,000 for the legal work required. Generally, you want an amount equal to the estate tax exemption at the time of death (currently $1.5 million for 2004 and 2005) to go into the bypass trust when the first spouse dies. You don't know for sure which spouse that will be. So each person's will should include language implementing the bypass trust if he or she is the first to go. (The trust won't actually come into legal existence until the first spouse passes away.)

QTIP Trusts
A QTIP is often teamed with a bypass trust. For the purposes of taxes, the value of the QTIP trust's assets goes into your spouse's estate, not yours, even though you designate who gets the trust's assets. That's an important distinction because generally, when you name the ultimate beneficiaries of a trust, the money must go into your taxable estate. A QTIP trust is the exception. The benefit here is that you can leave more than $1.5 million to your kids, but they won't have to pay taxes on it until your spouse dies. There is one potential cost to this benefit (depending on your situation): Your spouse must get the income generated by the trust as long as he or she is alive.

As we said, the QTIP trust is often paired up with a bypass trust — some estate planners call it an A-B trust arrangement. This setup can be really helpful if this is your second marriage and your spouse is worth either far less or far more than you are.

Here's how the QTIP trust works. Say you're worth $2.5 million and your wife is worth $350,000. Your first step would be to set up a bypass trust for $1.5 million, with your kids as the ultimate beneficiaries. This step is estate-tax-free, because it's sheltered by your $1.5 million exemption. Now what should you do with the remaining $1 million in your estate? Generally speaking, you could leave it to your spouse with no tax penalty, (because of the unlimited marital deduction) but that means she would determine the money's ultimate fate. Or you could give it directly to your kids, but then they would have an immediate tax bill.

The best choice is to set up a QTIP trust, naming your kids as the final beneficiaries of the $1 million. In this case, the trust's assets are counted as part of your wife's estate for tax purposes, but when she dies, the cash actually goes where you want it to go. And since she's still under the $1.5 million estate-tax exemption, there's no federal estate tax bill.

The QTIP trust is now more attractive than ever because the estate tax exemption will hit $1 million in 2006. So even if the QTIP trust puts your spouse over the current exemption amount, if he or she lives long enough, the increasing exemption will wipe out or greatly reduce the federal estate tax hit.

However, before setting up a QTIP trust, keep in mind that your kids won't see the money in the trust until your spouse dies. "If you're a 65-year-old man who's run off with a 25-year-old woman, then a QTIP trust is probably not for you," says Steve Katten, a tax attorney in Fort Worth, Tex.

Your Will
It may surprise you to learn that, according to Consumer Reports, 70% of American adults don't have wills. Why? Blame inertia. "People know they're going to die eventually. But nobody plans to die in the next year," says David Otto, a financial planner in Katonah, N.Y. The trouble is, if you die suddenly without a will, you'll be sticking your family with a lot of unneeded confusion at what couldn't be a more difficult time. For example, the laws of your state will determine who becomes responsible for your children.

A will can be quick and easy to produce — all the more reason to do one now — but it must do a few specific things. It must name an executor. It must name a guardian, if you have minor children. And to prevent the possibility of your estate being drained by legal bills, it absolutely must spell out how you want your property distributed as specifically as possible. The more vague the instructions, the more likely your descendants will have reason to quibble.

To avoid such strife, you can draw up a simple will — spelling out exactly who gets what — in a single afternoon, using Nolo Press's Willmaker software. Otherwise, you'll want to hire a lawyer, which will cost between $500 and $1,000. If you want to set up a bypass or QTIP trust arrangement, you will need a more complicated will and some additional trust paperwork. In this case, you may spend around $2,500 to $3,000 for the whole will and trust package.

A Living Trust
For some people, a living trust, sometimes called a will substitute, can be more effective than a will. One of its advantages is that your assets move to your heirs without having to go through probate — the process by which a court examines your will and declares it valid. That's a big plus in states like California and Florida, where probate can drag on for months. And if you own property in several states, multiple probate proceedings may be required to settle your estate in absence of a living trust. Moreover, a living trust is private, while probate is a public process — a plus if you don't want people to know who got what.

But living trusts, which are often peddled as estate planning cure-alls, aren't for everyone. At $2,000 to $3,000 a pop, they're more expensive than wills. And to make them effective, all your assets — your house, your brokerage accounts, everything — must be transferred into the trust. Finally, unless it is teamed with a tax-saving bypass or QTIP trust, a living trust won't save a dime of estate taxes.

Durable Power of Attorney & Health Care Proxy
More than a decade ago, Marcia Kowan's mother had a stroke and needed to go into a nursing home. The mother had a will and kept it up to date, but she never signed what's known as a durable power of attorney. That meant Kowan couldn't get at her mother's substantial assets to cover the nursing home bills. She had to hire a lawyer and file to become her mother's guardian. The cost, $5,000, was a big chunk of Kowan's salary as a school teacher in White Plains, N.Y.

The oversight was small. A durable power of attorney — which, unlike a regular power of attorney, has staying power in the event of a disability — doesn't necessarily even require a lawyer. And you can get the forms you need at the local stationery store for a couple of dollars. But the impact was large. "It was mad hysteria," Kowan remembers.

A health care proxy can also eliminate much pain on the part of your heirs. "If you should become terminally ill or injured in an accident, and you don't wish to be kept alive by artificial means, a health care proxy enables you to authorize named individuals to make medical decisions on your behalf," says Vincent Handal, a New York estate-planning attorney. In other words, it instructs the hospital not to put you on life support if there isn't reasonable expectation of recovery. The proper forms for your state are available at local stationery stores or can be downloaded for free at Partnership for Caring, a nonprofit group.

If you hire an attorney to prepare your will, he or she should be willing to throw in a durable power of attorney and health care proxy for free or for only a minimal extra charge.

Funeral and Burial Plans
For more than a decade, Boston financial planner Dee Lee lived next door to a woman named Grace Cummings, who had an odd habit of telling anyone who would listen about the type of funeral she desired. She wanted a memorial service that celebrated her life, not mourned it, so she told everyone not to wear black.

She wanted the choir to sing two hymns: "What a Friend We Have in Jesus" and "I Would Be True." She even wrote her own obituary. It bordered on the obsessive, Lee remembers.

But Cummings had her reasons. Years earlier, the day after her uncle's elaborate funeral, his relatives found a letter saying he wished to be cremated. "Grace wasn't going to let that happen to her," says Lee. If you have specific wishes about how you want your remains handled, don't just leave a letter in a desk and assume your family will find it before it's too late. Leave a copy with your lawyer, to be handed to your executor and/or your spouse and children before funeral preparations are made. Leave copies with your family, too.