(MONEY Magazine) – IT'S STRANGE but true: about seven of 10 adults have life insurance, but only a third have wills. The most plausible explanation for such faulty forward planning is that insurance is sold and wills are not. Since lawyers don't hawk their wares door to door, you will just have to motivate yourself to provide a secure financial future for your family. Consider the consequences if you decide to do nothing: Thy will won't be done. Should you die without a will, your heirs' inheritances will be determined under state laws of intestacy, which may not even begin to match your own notion of who should get what. In most states your assets are apportioned among your spouse and children, often with half to two-thirds going to your kids. The tax man grabbeth. Even if you write a will, your estate may not escape taxation. By using trusts, however, a married couple can pass as much as $1.2 million to their heirs free of federal estate tax, with its grim-reaper rates running as high as 55%. Suffer ye children. A carefully drawn estate plan will protect and preserve property that you leave to young children or disabled heirs. You can also spare your heirs the inconvenience of probate, the legal process in which your will is proved valid and your assets are inventoried in court. To accomplish all of this, you will need the help of an attorney who is well versed in estate planning. Unfortunately, finding a lawyer who is experienced in this specialty may be difficult. Ask your friends, relatives, accountant or financial planner for recommendations, or call your city's bar association and ask for the telephone number of the local estate planning council, which is an association of lawyers, accountants, insurance agents, financial planners and bank trust officers who specialize in estate planning. You will be able to communicate more effectively with your lawyer if you understand the fundamentals of estate planning discussed below.

-- A SIMPLE WILL Many people never get around to writing a will for fear of confronting their own mortality. Others figure they don't need one if they own all of their assets jointly. But their survivors eventually learn that joint ownership is no substitute for a well-drafted will. Assume, for example, that an elderly widow puts her son's name on her bank account, making him joint owner of the balance, so he can deposit checks for her. She may tell him to divide the money equally with his siblings after she's gone, but what if he decides to keep the cash? His brothers and sisters can sue, but litigation is costly and time consuming and may not be worthwhile unless a large amount of money is at stake. Married couples shouldn't rely solely on joint ownership either. If a childless couple were involved in an accident in which the husband was killed while the wife survived for another day, the husband's half of the couple's joint property would automatically pass to his wife. But unless she managed somehow to scribble a will as she lay on her deathbed, all of the couple's assets would go to the wife's relatives after her death, leaving his family with nothing. Couples with minor children also need wills, despite the fact that their jointly held property will go to their children under state laws of intestacy if they die together. It's in a will that you nominate guardians to care for your children and manage their inheritances. If you don't name caretakers for your kids, the probate judge will appoint guardians of his or her own choosing for the children and their assets. You also nominate the executor of your estate in your will. It is his or her responsibility to pay your debts, file tax returns and disburse assets to your heirs after you are gone. (For more about the duties of an executor, see ''Advice for Executors'' on page 103.) The peace of mind that a will provides comes at a modest price. Simple wills for a husband and wife cost $50 to $200. If you already have a will, examine it periodically to make sure it still reflects your wishes. (For more about reviewing and amending wills, see ''Reviewing Your Will'' on page 106.)

-- CARING FOR HEIRS If your heirs are very young, disabled or simply disinclined to manage money, you will shortchange them if you do nothing more than write a rudimentary will. Say that you and your spouse die and leave your assets to your minor children. The guardian of their property named in your will must report expenditures and investments on the children's behalf to a judge. This may prevent the guardian from stealing or dissipating the children's inheritances, but it also gives a judge who is unfamiliar with your financial goals and investment philosophy power over how your legacy is managed and spent. That's one reason why it's advisable to create a trust in your will to hold your children's inheritances. If you do, you needn't name a guardian of your children's assets because a trustee you select will follow instructions that you set down in your trust document. Another advantage of creating a trust is that you can keep the trust principal out of your children's hands until you think they will be mature enough to manage money. If you leave property to your children in your will, on the other hand, they can claim their inheritances when they reach the age of majority, which is 18 in most states. Unhappily, many people shy away from trusts because they associate them with the superrich. In reality, a married couple might pay as little as $250 for wills that establish trusts for their children. Trusts are quite flexible, and a lawyer can draft yours to fit your family's particular needs. Before you read about types of trusts, it may be helpful to understand just how trusts in general work. A trust is a legal device that holds property placed in it by a person called the grantor for the benefit of one or more beneficiaries. The grantor sets forth instructions for the management of the trust and the disbursement of its income and principal in a document called the trust agreement, which is drawn up by an attorney. The grantor also chooses a trustee to carry out his wishes.

There are two basic types of trusts, testamentary and living (sometimes called inter vivos). A testamentary trust is created in your will and takes effect upon your death. A living trust starts to operate during your lifetime. Living trusts may be either revocable or irrevocable. With a revocable trust, you continue to control the trust property, meaning you can change the trust's provisions, terminate it or, in some cases, even serve as trustee. Once you establish an irrevocable trust, however, you cannot control assets in it or tinker with its provisions. As a result, property in an irrevocable trust isn't included in your estate for the purpose of calculating estate taxes. (You may, however, incur gift tax when you put property into an irrevocable trust.) Assets in a revocable trust are part of your taxable < estate. A testamentary trust for your minor children that becomes irrevocable upon your death is included in your taxable estate because you controlled the property in it during your lifetime. A trust is only as effective as the trustee you choose. The ideal trustee is financially savvy and has your children's best interests at heart. Your relatives and friends will probably agree to serve without any compensation. Institutional trustees such as banks and trust companies will generally levy annual fees of about 1% of a trust's assets upto $1 million. After that, the larger the trust, the smaller the trustee's percentage. Consider Gregory and Arlene Bello of Langhorne, Pa., both 30. They named Arlene's mother to serve as trustee of a trust to benefit their children, Nicholas, 2 1/2, and Jessica, four months. Arlene's parents will also act as the children's guardians. The Bellos wisely named a couple their age, Gary and Emily Buhler, both 30, as successor guardians. Gary Buhler will serve as successor trustee. Says Gregory Bello: ''We picked our closest friends because they share our attitudes about family and education and our religious faith. We also felt that they would love our children.''

-- ESTATE TAXES If you fail to draw up an airtight estate plan, the Internal Revenue Service may claim a more than generous share of your estate. The top estate tax rate was supposed to fall to 50% this year. But it was frozen at 55% on taxable estates of more than $3 million until 1993 in a little-publicized provision of the 1987 tax law. Last year Congress also slapped a 5% surtax on estates above $10 million. In addition, state death taxes range from zero to 30%. Yet with proper planning, most estates can escape federal and state taxation. Your $600,000 exclusion from federal taxes includes the sum of taxable gifts you make while you are alive as well as the estate you leave when you die. You can make tax-free gifts of as much as $10,000 a year each to as many people as you would like; married couples giving jointly may bestow as much as $20,000. You can also make unlimited tax-free gifts to charity and payments to health-care and educational institutions to cover a relative or friend's medical or tuition bills. In addition, you may make gifts of any size and leave an estate of any value to your spouse tax-free. If your spouse is not adept at money management, you might want to leave assets to him or her in a trust that qualifies for the marital deduction, meaning that its contents aren't subject to estate tax. There are two basic types of marital deduction trusts. With a general power of appointment trust, your spouse decides which heirs get the trust's assets after he or she dies. With a QTIP (for qualified terminable interest property) trust, you choose your spouse's eventual heirs. If you leave everything to your spouse, however, you may succeed only in postponing estate taxes until his or her death. As a result, more complicated tax planning may be necessary. You can eliminate or at least reduce estate taxes by removing assets from your estate. This is accomplished by making tax- free gifts during your lifetime, charitable contributions in your will or by placing property in trusts. A married couple can pass as much as $1.2 million to their heirs tax-free if both spouses fully utilize their $600,000 exemptions. Take, for example, Richard Brunetti, 49, and his wife Mary, 47, of Newtown, Pa. They have created revocable bypass (sometimes called family or credit-shelter) trusts. If Richard dies or becomes unable to manage his financial affairs, assets he owns of up to $600,000 go into his trust. Mary will receive income from the trust and is entitled to as much as 5% or $5,000 of the principal, whichever is greater, each year. In addition, the trustee has the discretion to give her the principal that she needs to support herself or pay medical bills. After her death, the Brunettis' four children become the trust's beneficiaries. No estate tax will be due because the trust isn't included in Mary's estate and the amount contributed to it by Richard was within his $600,000 exemption. If Mary dies or becomes incapacitated first, her trust is funded in a similar way for Richard's benefit. You can also trim your tax liability by placing property in an irrevocable living trust. The hitch: few people can afford to relinquish control of real estate, securities or other assets years before their death. Many people, including the Brunettis, can afford to transfer the ownership of their life insurance policies to an irrevocable life insurance trust. Upon your death, your life insurance proceeds go into such a trust untaxed. Typically, your spouse receives income from the trust for life and can even tap its principal if necessary. After he or she dies, the assets go to heirs named in your trust agreement. There's one catch, however: if you die within three years of establishing an * irrevocable life insurance trust, the insurance proceeds are included in your taxable estate. For that reason, attorneys often include a clause in the trust agreement stating that should you die within three years, the insurance will go directly to your spouse or into a trust for his or her benefit. The trust is included in his or her estate. You can also remove assets from your taxable estate by making gifts to charity during your lifetime or in your will. Says Conrad Teitell, a White Plains, N.Y. attorney who specializes in legal issues affecting charitable giving: ''If you give during your lifetime, you can be a philanthropist at wholesale prices because you get an income tax deduction and remove the property from your estate. You can also experience the joy of giving, which you cannot do if you leave money to a charity in your will.'' You can even give assets to a charity and keep on getting income from them by establishing a trust or buying an annuity from the charity. Of course, because you retain income from your gift, the tax deductions you receive will be smaller than what you might have gotten with an outright gift. If you establish a charitable remainder unitrust, for example, you receive an amount determined annually by multiplying a fixed percentage that you select when you create the trust -- typically 7% to 9% -- by the market value of the trust's assets. After your death, payments end or a beneficiary that you name can continue to receive the income from the trust. When he or she dies, the trust's property passes to the charity. In general, charities welcome only sizable remainder unitrusts -- worth $25,000 or more. Charitable remainder annuity trusts work much like unitrusts but pay out a fixed amount each year, usually 7% to 9%. Appreciated property producing little or no income makes the best gift. If you sold it and reinvested the proceeds for higher income, you would incur a taxable capital gain. But if a charitable trust sells the property, no tax is due. For smaller donors, some charities offer pooled income funds that operate much like mutual funds. Many such funds -- for example, those of Smith College, the Episcopal Church and the National Audubon Society -- accept initial donations as small as $5,000. Altruists whose hearts are bigger than their bank accounts should also consider charitable gift annuities. Many tax-exempt organizations -- such as the Salvation Army, the Arthritis Foundation and the Church of the Nazarene -- issue these contracts for contributions as small as $1,000. In exchange for your donation, the charity pays you a fixed amount each year for life. The younger you are when you buy the annuity, the lower your return. For example, a 50-year-old would receive 6.5% for life while a 90-year-old would collect 14%. You would receive more income if you bought an annuity from an insurance company, but you would not get any income tax deductions or an estate tax break. One last point: it is important to leave a liquid estate. If yours is loaded with Manhattan real estate or Mondrians, your heirs may be forced to sell your assets at fire-sale prices to satisfy the tax man. Your survivors will not face a liquidity crisis if you leave them enough life insurance to pay the estate taxes. Also, insurance proceeds are not subject to probate, so your executor will be able to get his or her hands on cash fast. If you wait until you are on your deathbed to act, you will not be able to buy life insurance but you can purchase special U.S. Treasury obligations called flower bonds. They generally yield only 4% but bloom at your death, when they can be redeemed at face value to pay federal estate tax.

-- PROBATE In some counties, probate court is a 20th-century version of Bleak House. Probate is less horrific in other locales, but it always takes time and costs money. Depending upon the efficiency of your executor and the local court, your heirs may have to wait six months to two years for their inheritances. If they fight over who gets what, the process can drag on for much longer. Court costs, attorneys' and executors' fees vary by locale, but they will probably add up to about 5% of your estate.

Worst of all, if you own property in more than one state, your executor will have to contend with two or more legal proceedings. And probate court records are public, so nosy neighbors and relatives can find out how much you left to your loved ones. Your share of assets that are jointly owned or have named beneficiaries -- such as life insurance policies, pensions and profit-sharing plans and Individual Retirement Accounts -- escapes probate. ''But don't let the tail wag the dog,'' warns David L. Lockwood, director of the Certified Financial Planners Program at the College for Financial Planning in Denver. ''You shouldn't put property in joint names just to avoid probate.'' This could, for example, trigger federal estate tax after the second spouse's death if he or she leaves an estate worth more than $600,000. A better solution is to create a revocable living trust. Property in such trusts also bypasses probate. A married couple should expect to pay $1,500 to $2,500 for a pair of living trusts that include so-called pour-over wills, which state that any property you forgot to place in your living trust should go there after your death. Those assets will be subject to probate, but most states have simplified, less costly probate procedures for small estates ($500 to $60,000). Revocable living trusts are flexible. You can keep any or all income such a trust produces, change its provisions or terminate it. You can even act as your own trustee. Consequently, property in a revocable living trust is included in your taxable estate. After your death, the trust can remain intact for your survivors or it can end with assets distributed to your heirs. Your wishes, which you set down in your trust agreement, are carried out by the trustee or, if you served as trustee during your lifetime, by the successor trustee you appoint. A relative, friend or one of your beneficiaries may agree to serve for free. If the trust terminates at your death, banks and trust companies generally charge a one-time fee equal to 1% of the trust principal. Retired real estate salesman Al Martin, 64, and his wife Maxeen, 59, of Poulsbo, Wash. decided to establish a living trust a year ago after the estate of Maxeen's mother was settled. In that case, probate took about a year, and approximately 5% of the estate was lost to attorneys' fees and other expenses. Says Al Martin: ''We wanted our estate to avoid probate for the sake of our two sons.'' The Martins' trust, which includes their home, a time-share condominium, cars, stocks and other investments worth about $500,000, will terminate after their death. A living trust can also benefit you while you are alive. If your physician certifies that you are no longer capable of handling your own finances, your successor trustee takes over. This is less expensive and often more satisfactory than the alternative, a court-appointed conservatorship. A conservator must present an annual accounting to the court and may have to get approval to make major expenditures and investment decisions. Your successor trustee simply follows the instructions in your trust agreement. Once you have grasped the basics of estate planning, it's time to act. Much of the humor in the dour field of estate planning has to do with poor planning -- like the New Yorker cartoon in which an elderly gent thumbs through a copy of How to Avoid Probate! on his deathbed. Says David S. Rhine, a tax partner with Seidman & Seidman/BDO in New York City: ''Good estate planning is a continuing process, not something that can be done after you go to your doctor and find out that you have three months to live.''

BOX: ADVICE FOR EXECUTORS

Congratulations! Your father wants you to serve as the executor of his estate. No doubt you won't think of this honor again until your father dies. But you will be able to settle your father's estate more quickly and economically if you prepare for the task in advance. First, you must discuss your father's financial affairs and intentions with him. You should ask him to maintain an up-to-date inventory of his assets and liabilities, which he can leave for you in a specified place. Your father doesn't have to give you a copy of the will, but he should tell you where the original is and who prepared it. When you file the will in probate court, a judge will officially appoint you executor of the estate. The court may require you to post a bond -- the size is typically equal to the value of an estate's cars, furnishings and other personal property -- to safeguard the financial interests of your father's other heirs, unless your father waived the bond in his will. The bond premium is paid out of the estate. Your first duty is to identify and determine the value of the estate's assets. Then, with an attorney's aid, you must shepherd the estate through probate proceedings. You needn't hire the lawyer who prepared your father's will, but you may want to do so if he or she is familiar with your father's financial affairs. The attorney's fee, as well as those of appraisers and accountants, comes out of the estate. If your father rented a safe-deposit box, you may have to inventory its contents under the watchful eyes of a state tax collector. It's also your responsibility to file claims for any life insurance or veterans' and Social Security benefits that are due. If your father died in an accident or because of medical malpractice, you should see to it that any necessary lawsuits are filed. In the meantime, you must invest and protect the estate's assets, perhaps seeking advice from a stockbroker, investment adviser or bank trust officer. Finally, you must pay your father's outstanding debts, file any required income, federal estate and state death tax returns and distribute what's left over to your father's heirs. It's your prerogative to determine which assets to sell to raise cash to pay debts, taxes and bequests. Throughout, you must keep careful records because most probate courts require a detailed accounting of all money received, spent and held by the estate. Your load may be lightened considerably if your father has named a bank or trust company as co-executor. The institutional executor will make investment decisions and file tax returns, relying on you to interpret your father's wishes. But don't count on such assistance unless your father's estate is both large and complicated. Most banks and trust companies won't handle estates of less than $75,000. An institutional executor's fees generally range from 2% to 5% of the total value of the estate. What's in it for you? Your commission, which may be set by state law or the probate court, is 1% to 5% of the estate. But you can waive the fee, accepting instead the gratitude of your fellow heirs.

BOX: REVIEWING YOUR WILL

The sour old Scrooge who revises his will weekly to avenge every slight may have a point. Most people seldom bother to review their wills at all, passing up the chance to make necessary changes. You and your lawyer should review your will every three years or so, but examine it sooner if you've grown much richer or suffered a serious financial setback. You should also review your will after the birth of a child or the death of a spouse or other beneficiary. An examination is also in order after tax law changes. And bear in mind that your will may be partially invalidated if you marry or divorce after writing it. If you move to another state, ask a local lawyer to make certain your will complies with your new home state's statutes. He or she can also tell you if you've done all you can to diminish state death taxes. You needn't tear up your old will and begin anew to make minor changes. For example, you can add or remove a beneficiary, change the amount of someone's bequest or replace an executor or guardian by asking your attorney to draft an amendment to your will called a codicil. Like wills, codicils must be signed and witnessed. After you've added a couple of codicils, however, draw up a fresh will to avoid possible confusion. Whatever you do, don't alter your will yourself. Says Richard P. Wilson, a Newtown, Pa. attorney who specializes in estate planning: ''Never write on the original copy. If you do, its validity can come into question.'' You shouldn't stash the original in your safe-deposit box because banks in many states will seal boxes until a court orders them opened. Says Patrick A. Naughton, a vice president at Chemical Bank in New York City: ''If you include burial instructions in your will, your survivors may not get to read them before your funeral.'' You should leave the original copy of your will with your lawyer, who may store it in his office or, better yet, with other wills in a bank vault. Or you can file your will at your county probate court for a fee, typically $10 to $30. If you wish, you can give your executor a copy of your will. To make reviewing it easy, keep copies in your safe-deposit box as well as at home.