Estate Planning

An estate plan answers two sets of questions. The first is about your lifetime: who pays your bills, manages your investments and makes medical decisions if an illness or accident leaves you unable to. The second is about your death: who receives each asset, who settles your affairs, who raises minor children and how much is lost to taxes, fees and delay.

For most households the plan is about control rather than tax, because the federal estate tax reaches only estates above $15,000,000 per person in 2026. A young parent with a modest 401(k) and a term life insurance policy often needs a plan more urgently than a wealthy retiree, because a Will is where you nominate a guardian for your children.

A common surprise is how little of a typical estate a will controls. Property reaches the next owner through one of four channels, and the first three bypass both the will and Probate, the court process for settling an estate.

Because the channels override one another in this order, the plan only works if they agree. A 401(k) still naming a former spouse goes to that person even if a newer will says otherwise, and federal law generally requires a spouse’s written consent before anyone else can be named on most 401(k) plans. In the nine community property states, each spouse can leave only their own half of community assets.

A workable plan comes together in a set order. The inventory comes first because it shows which assets a will would even touch, and the beneficiary forms come next because they usually move more money than the will does. Signing rules for the documents are set by each state, so most people use an attorney licensed where they live, especially with a business, a blended family or property in more than one state.

For deaths in 2026, the federal basic exclusion amount is $15,000,000 per person, set by the One Big Beautiful Bill Act with no scheduled sunset and indexed for inflation after 2026. Only the taxable estate above it is taxed, at rates that top out at 40%. Property left outright to a US citizen spouse qualifies for the unlimited marital deduction, and bequests to qualified charities are deductible.

A married couple can effectively shelter $30,000,000 through portability, which lets a surviving spouse use the first spouse’s unused exclusion. It is not automatic: the executor must elect it on a Form 706, even when no tax is due. The return is due nine months after death, though an estate filing only to elect portability can use a simplified late election for up to five years, and skipping it altogether is a common and expensive oversight. Lifetime gifts draw on the same exclusion, but in 2026 you can give up to $19,000 per recipient without filing a gift tax return.

State taxes can matter more. Twelve states and the District of Columbia levy their own estate tax, several with exemptions far below the federal amount, and a handful, including Pennsylvania, New Jersey and Kentucky, charge an inheritance tax on what some heirs receive.

Estate tax is only half the tax picture. The other half is the income tax your heirs pay, which depends on the kind of account they inherit.

Taxable brokerage accounts, stocks and real estate usually get a step-up in basis to their value at death, erasing the capital gain built up during your life. Pre-tax money in a traditional IRA or 401(k) gets no step-up: every dollar is ordinary income to the heir when withdrawn, and most non-spouse beneficiaries must empty an inherited IRA within ten years. Roth accounts generally pass free of income tax.

That difference shapes good plans. Leaving pre-tax accounts to a charity, which owes no income tax, and taxable or Roth assets to family raises what the family keeps. A Roth conversion moves the tax onto your own return, which pays off when your bracket is lower than your heirs’ will be.

Most estate plans fail through neglect rather than bad drafting. Documents signed years ago no longer match the family, the assets or the state the owner now lives in, and accounts opened since then carry beneficiary forms nobody compared with the will. A move matters more than people expect, because a new state can change the signing rules, a spouse’s property rights and whether an estate or inheritance tax applies.