NEW YORK (MONEY Magazine) - Nobody likes to think about it. But the more effort you put into estate planning now, the better off your loved ones will be when you're gone.

To help, MONEY compiled answers to 7 key questions. You can jump straight to the questions that concern you most, by clicking any of the following:

Do I have enough life insurance?

How should I choose beneficiaries for specific accounts?

Should I pass down wealth now or when I die?

How do I disinherit a family member?

How do I pick an executor for my estate?

How do I pick guardians for my kids?

Who needs wills, trusts and proxies?

Back to Family Matters main page for more categories

You already know that life insurance is a must if your family depends on you. The question is, how much coverage do you need? The American Council of Life Insurers (ACLI) offers this rule of thumb: five to seven times your annual earnings. But this formula can vary and "is very much a personal matter," says Herb Perone of ACLI.

The more expenses and dependents you have, the more insurance you'll need. If you've got fat retirement accounts or other assets (like an education savings fund for your kids), you can get by with less. But at a minimum, you should leave your family enough to cover big-ticket items like your mortgage and your children's college tuition. The Internet offers an abundance of fast, free places to get a rough estimate of your life insurance needs, plus rates. Among them: Quotesmith.com.

You'll also face a choice between term and whole-life insurance. We recommend term insurance, which is much cheaper and provides more benefits for the dollar. Term coverage is also cheaper the younger you are. (The monthly premium for an annually renewable $500,000 term policy for a healthy 40-year-old who has never smoked runs $31 to $36 a month for a man, and $28 to $31 for a woman.)

That said, you're buying a policy that may not have to pay out for decades, so buy from a firm that's financially sound (A++ or A+ ratings from A.M. Best; or A+, A or A- ratings from Weiss Ratings; 800-289-9222; $15 for rates given over the phone, or $7.95 to get data online). For more insurance information from CNN/Money, click here. back to list of questions

This is not a trivial decision, even if you already have a will. While state laws vary, naming a person as an account or policy beneficiary generally overrides any designation in a will. And if you fail to file your beneficiary paperwork at all (or if your primary beneficiary is deceased and you haven't named a contingent beneficiary), the money will go to your estate. In that case, the assets may need to go through an expensive and lengthy probate process.

So take these designations seriously: review your decisions whenever you experience a major life event, such as the birth of a child, divorce or remarriage, and certainly whenever you change your will. (You want all the paperwork to be in sync.) And always name a contingent beneficiary. back to list of questions

Estate planning is a mix of the emotional and the practical. If you think that now's the time for your daughter to take possession of the family's long-cherished diamond brooch, then by all means give it to her while you can enjoy seeing her wear it.

But there's a more prosaic reason to start passing down your wealth now, and that's estate taxes. Forget any preconceived notions about who gets hit with them. (Hint: You don't have to be Bill Gates.) If by the year 2011 you expect your assets -- including retirement funds, investments, home and life insurance benefits -- to be worth more than $1 million, you've got a potential estate-tax bill on your hands.

Although the new tax law slowly increases the amount you can leave to heirs tax-free (up to $3.5 million in 2009) and repeals estate taxes altogether for one year (in 2010), the breaks vanish in 2011. At that time, estates exceeding $1 million will be subject to the so-called death tax once again. And as of next year, gifts made during your lifetime that exceed $1 million will be subject to estate taxes.

How should you navigate around these limits? Each year, you can give up to $11,000 to any person you want, and to any number of people, without it being counted against your lifetime gift- and estate-tax exclusion. Pass along assets that will appreciate, such as stocks, mutual funds or a house, so they don't grow in your estate. If you want to give more, you can pay anyone's educational or medical bills without triggering gift taxes, so long as you send payment directly to the institution.

There are, of course, a variety of more complicated tools available. If you have a potentially significant estate, sign up with a quality estate lawyer and get a plan in gear. There's no reason your hard-earned wealth should go to anyone -- including Uncle Sam -- you don't want to have it. back to list of questions

Deciding who gets your assets after you die is difficult enough, but what if you want to make sure someone isn't included? Sure, the word "disinherit" conjures up images of screaming family fights, but there are many reasons to do it. Maybe one of your children is a wealthy entrepreneur and another has special needs, or perhaps you are in a second marriage and want to provide for your children from a previous marriage--but not for your ex. Cutting out anyone other than members of your nuclear family is easy; just leave them out of your will. But states have special protections for spouses and children.

Spouses. If you live in a community property state -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin--the law assumes that your spouse automatically owns half of everything you both earned during your marriage.

But there are ways to define money that is yours, separate from the community property, to make sure it goes where you want when you die, says Chris Croft, a California attorney and certified financial planner. But both spouses must sign a written agreement that explains which assets belong to each partner. Since there are different rules about separating commingled funds (assets owned by each person in a jointly held account) even in community property states, you should consult an attorney.

All other states give your spouse the right to claim one-quarter to one-half of your estate, no matter what your will provides. In these cases, you're out of luck--though, practically speaking, the provision kicks in only if your spouse goes to court to challenge your will.

Ex-spouses. Your ex has no claim to your assets when you're gone unless he or she has some claim against your estate before you die, such as a qualified domestic-relations order--a court order that awards a portion of a retirement benefit or pension to your ex. "It simply depends on how the assets were separated at the time of the divorce," New York City estate-planning attorney Gideon Rothschild says.

Children. In most cases, you can disinherit a child (or a grandchild) simply by stating that in your will. But don't think that just "forgetting" to mention children automatically leaves them out: They'll have an easy time contesting if you don't make your wishes plain.

There are a few state-by-state protections for children too. For example, most states have laws to protect against accidental disinheritance, if a child was born after you drafted your will and thus isn't mentioned. Again, unless you specifically say that your baby is out, he'll be legally entitled to the same share as your other children. back to list of questions

To avoid bequeathing strain on your survivors, you need an executor who is qualified to get the job done. "Someone has to get all your assets together, make sure all the bills are paid and make sure the assets are properly handled so that your beneficiaries will receive the full benefit of them," says Fred Raffety of Focus Financial Advisors of Rockford, Ill. Before you simply pick your spouse, adult child or a close friend, ask yourself these five questions.

Is he or she financially savvy? If your estate is large and complicated (including a will and one or more trusts, for example), you may be better off designating a financial pro, such as an estate-planning attorney, certified public accountant or banker, as well as a family member. The executor or personal representative (the title used in some states) generally has the authority to sell securities without first notifying beneficiaries, and an inexperienced money manager, even with the best intentions, may make some ill-advised moves.

Does he or she live nearby? An executor may need to attend meetings and sign papers with bank officials, bill collectors and family members.

Does he or she want to take on this responsibility? Being an executor can require many months of work, especially if the will is contested or causes squabbles among beneficiaries. Before you name anyone, talk to him or her and to your spouse and children to avoid any unpleasant surprises.

What if the executor can't fulfill the duties? Pick a successor in case your first choice can't do the job when the time comes. If you don't, the courts might appoint one.

Should the executor be paid? Some states have specific rules governing executor pay. If not, you should have some provision for fees--even to a friend or family member--to cover the executor's time and effort. Banks and financial pros usually won't accept the job unless there's a written provision outlining how much they will be paid.

The typical fee ranges from 1.5% to 3% of the estate in probate, with independent financial consultants at the low end and banks with fiduciary responsibilities, such as document and tax preparation, generally at the higher end. Remember: The executor fee is deducted from the taxable value of the estate. back to list of questions

Why are there so many parents in America without wills? Sure, there are some who can't handle dealing with death. But just as often, they can't cross the guardian hurdle, that uncomfortable sit-down where the two of you have to decide whether it'll be his favorite sister you ask to take care of your rugrats--or yours.

If one parent dies, the other almost always gets custody of the kids--even after a divorce. But in the unlikely event that both parents pass away, someone must take charge of the kids, and you don't want it to be the courts.

The key to making a choice, says New York City estate-planning attorney Gideon Rothschild, is approaching it as a business decision. List all the people you're considering on a piece of paper, then run them through our brief checklist. By the time you reach the bottom, chances are you'll have a clear victor. And, notes Rothschild, always name an alternate--in case your chosen guardian's life changes and he or she is not able to serve.

Are they healthy? Naming someone of your own generation is preferable to naming your parents.

Do they have the money? If you won't be leaving enough assets to provide for your kids' support through college, this is a big consideration.

Do they have the time? Is it realistic to think that your brother, who has three kids of his own, will be able to focus on yours?

Are they geographically desirable? After your children have been through the trauma of losing parents, uprooting them should be avoided if possible.

Do they share your views? If it's important to you that your kids be raised within your faith, for example, try to find guardians who share it.

Should you name one person or both people in a couple? You're best off naming the person you really want to have care for your child, getting the spouse as a bonus. back to list of questions

Once upon a time, a simple will sufficed: You died and the will bequeathed your estate to your next of kin. But these days estate planners recommend that you set up both a will (especially if you need to name a guardian for minor children) and a revocable living trust, especially if you have complicated assets such as multiple brokerage accounts or real estate.

This trust is a lot like a will in that it includes instructions for handling your estate upon your death. But it has the advantage of avoiding probate and ensures privacy, since the terms of the trust are not usually a matter of public record. Also, trusts better protect your assets from creditors and former spouses. Although you transfer ownership of your assets to the trust, you don't relinquish control. You can still buy, sell, borrow or transfer assets within the trust. Plan to spend at least $1,500 for the document and legal fees.

No matter what, you don't want to die intestate, the one-size-fits-all inheritance mechanism that the state imposes on your estate if you die without a will or living trust. Here are some other estate-planning tools to consider.

Living will

What does it do?: Advises doctors whether to take extraordinary steps to keep you alive

Cost: $50 to $300[2]

Who needs it?: Everyone

Health-care proxy or health power of attorney

What does it do?: Designates someone to make choices about your health care in the event that you can't make your own decisions

Cost: $50 to $300

Who needs it?: Everyone

Durable Power of Attorney

What does it do?: Designates someone to handle your financial affairs in case you're incapacitated

Cost: $25 to $100

Who needs it?: Everyone

Bypass Trust

What does it do?: Divides assets so a husband and wife can each claim a $1 million tax exemption, which will lower estate taxes when the heirs inherit their assets

Cost: $1,500

Who needs it?: Married couples with substantial assets

Who doesn't?:Single people

Qualified Terminable Interest Property (QTIP) Trust

What does it do?: Allows you to leave assets in excess of $1 million (tax-free) to children from a previous marriage, while granting your current spouse income and emergency access to these funds

Cost:$500 add-on to a living trust

Who needs it?: Couples with a taxable estate and children from a previous marriage

Who doesn't?: Anyone with an uncomplicated nuclear family

Qualified Personal Residence Trust (QPRT)

What does it do?: Reduces or removes the paper value of your home from your estate-tax total, lowering your estate-tax burden by giving control to your heirs

Cost: $1,500 and up

Who needs it?:Anyone whose assets (including home) trigger estate taxes

Insurance Trust

What does it do?: Prevents estate taxes from being levied on life insurance policies; also allows you to designate the way the proceeds are used

Cost: $1,000 and up

Who needs it?:Anyone whose assets (with policy) trigger estate taxes back to list of questions