What Is Estate Planning? Wills, Trusts, and Protecting Your Legacy

Estate planning isn't just for wealthy retirees with beach houses and stock portfolios. If you have a bank account, a child, a pet, or even just strong opinions about what happens to your stuff when you're gone, you need an estate plan. It's also about what happens if you're alive but incapacitated; who makes decisions for you, who pays your bills, and who speaks to your doctors. Here's everything you need to know.

What Is Estate Planning and Who Needs It?

Estate planning is the process of creating legal documents that dictate how your assets are distributed, who makes decisions on your behalf if you're incapacitated, and who cares for your dependents after your death. Every adult needs an estate plan, not just the wealthy. At minimum, you need a will, durable power of attorney, healthcare directive, and healthcare power of attorney. Without these documents, courts make these decisions for you using default state laws that may not reflect your wishes.

Why Estate Planning Matters for Everyone

The most common excuse for not having an estate plan is "I don't have enough assets." But estate planning isn't primarily about assets; it's about decisions. Who raises your kids if something happens to you? Who manages your finances if you're in a coma? Who decides whether to keep you on life support?

Without an estate plan, these decisions are made by a court; a judge who doesn't know you, your values, or your family dynamics. The court will follow your state's default rules, which may not align with what you would have wanted. Your estranged parent might inherit everything. A court-appointed guardian might raise your children. These outcomes are entirely avoidable with basic planning.

The Core Estate Planning Documents

A basic estate plan consists of four documents. Every adult should have all four, regardless of age or wealth:

The American Bar Association provides free estate planning resources and can help you find a qualified estate planning attorney in your area.

Beneficiary Designations

Here's something most people don't realize: beneficiary designations on financial accounts override your will. If your will says everything goes to your spouse but your 401(k) beneficiary form still lists your ex from 15 years ago, your ex gets the 401(k). The will doesn't matter for that account.

Accounts with beneficiary designations include 401(k)s, IRAs, life insurance policies, annuities, HSAs, and sometimes bank and brokerage accounts (through payable-on-death or transfer-on-death designations). Review every beneficiary designation at least annually and after any major life event.

Clarity shows you all your financial accounts in one place, making it easier to create a checklist of accounts that need beneficiary reviews. It won't show you the beneficiary details themselves (those live at each institution), but seeing every account in a single dashboard ensures you don't forget one.

What Happens Without a Will

Dying without a will is called dying "intestate," and it means your state's default inheritance rules take over. These rules vary by state but generally follow a pattern:

1. If you're married with no children, your spouse typically gets everything (though in some states, your parents may get a share).
2. If you're married with children, your spouse and children may split the estate — sometimes 50/50, sometimes with the spouse getting a larger share.
3. If you're unmarried with children, your children inherit everything.
4. If you have no spouse or children, it goes to parents, then siblings, then more distant relatives.
5. If no relatives can be found, the state takes everything (escheatment).

Notably absent from intestate succession: unmarried partners, close friends, stepchildren (unless legally adopted), charities, and anyone else who isn't a legal relative. If these people matter to you, you need a will.

Probate and How to Avoid It

Probate is the court-supervised process of validating a will, paying debts, and distributing assets to heirs. It's public, often slow (6-18 months), and can be expensive (2-7% of the estate in some states, including attorney fees and court costs).

Not all assets go through probate. Assets that pass outside of probate include:

• Accounts with beneficiary designations (retirement accounts, life insurance)
• Jointly owned property with right of survivorship
• Assets held in a living trust
• Accounts with payable-on-death or transfer-on-death designations

The simplest way to avoid probate is to make sure most of your assets have beneficiary designations or are held in a living trust. For many people, proper use of beneficiary designations alone can keep most assets out of probate without the cost of setting up a trust.

Estate Tax: Who Actually Pays It?

The federal estate tax exemption for 2026 is over $13 million per person (roughly $26 million per married couple). This means that unless your estate exceeds $13 million, you owe zero federal estate tax. The vast majority of Americans will never owe estate tax.

However, this high exemption is set to sunset after 2025 under current law, which could bring it back down to roughly $6-7 million per person. This is a significant change that could affect many more families, particularly those with appreciated real estate, business interests, or substantial investment portfolios.

Also, some states have their own estate or inheritance taxes with much lower thresholds. Oregon's exemption is only $1 million. Massachusetts is also $1 million. Washington state has a $2.193 million exemption. If you live in one of these states, state-level estate tax planning may be relevant even if federal estate tax isn't.

Step-Up in Basis at Death

One of the most valuable tax benefits in the entire tax code is the step-up in basis at death. When you die, the cost basis of your appreciated assets resets to their fair market value on the date of death. All the unrealized capital gains accumulated during your lifetime are permanently erased for tax purposes.

Here's a concrete example: you bought stock for $50,000 that's now worth $500,000. If you sold it during your lifetime, you'd owe capital gains tax on $450,000 of gains — potentially $67,500 or more in taxes. If instead you hold the stock until death, your heirs inherit it with a $500,000 basis. If they sell it immediately, they owe zero capital gains tax.

This has enormous implications for estate planning and investment strategy. It often makes sense to hold highly appreciated assets until death rather than selling and paying capital gains tax during your lifetime. It also means gifting appreciated assets during your lifetime can be tax-inefficient compared to leaving them as an inheritance (gifts carry over the original cost basis, not a stepped-up basis).

Digital Estate Planning

Modern estate planning needs to account for digital assets that didn't exist a generation ago. Consider:

• Passwords and access: Email accounts, social media, online banking, cloud storage. If no one has your passwords, accessing these accounts after your death can be extremely difficult. Use a password manager and make sure your executor knows how to access it.
• Cryptocurrency: If you hold crypto in a self-custody wallet, your private keys or seed phrase are the only way to access those funds. If they die with you, the crypto is lost forever. Store recovery information securely and make sure someone you trust knows how to find it.
• Online accounts with value: Domain names, digital media libraries, online businesses, royalty-generating content, reward points. These have real monetary value and should be included in your estate plan.
• Social media: Most platforms have legacy contact or memorialization settings. Decide in advance whether you want accounts deleted, memorialized, or transferred. Document your preferences.

Estate Planning for Parents

If you have minor children, estate planning takes on special urgency. The most important decision is naming a guardian; the person who will raise your children if both parents die. Without a designated guardian, a court decides, and the court may choose someone you wouldn't have chosen yourself.

When choosing a guardian, consider values alignment, parenting style, location, financial stability, and willingness to serve. Have the conversation with your chosen guardian before naming them — it's a significant responsibility. Name an alternate in case your first choice can't serve.

For the financial side, consider whether you want the guardian to also manage the money you leave for your children, or whether a separate trustee should handle the finances. Separating guardianship from financial management provides checks and balances and can be appropriate when the best guardian isn't the best money manager.

Letter of Intent

A letter of intent is an informal document (not legally binding) that provides guidance to your executor, guardian, and family. It's where you explain the "why" behind your estate plan decisions and provide practical information that doesn't belong in a legal document.

Your letter might include: your wishes for your funeral or memorial, explanations for why you divided assets the way you did, guidance on raising your children, the location of important documents and accounts, your values around money and giving, sentimental items you want specific people to have, and care instructions for pets.

This document can prevent family conflict by explaining your reasoning. If you leave unequal inheritances (often appropriate when children have different needs), a letter of intent can help family members understand and accept the decision.

When to Update Your Estate Plan

An estate plan isn't a one-and-done exercise. Review it every 3-5 years at minimum, and update it immediately after any of these life events:

• Marriage or divorce
• Birth or adoption of a child
• Death of a beneficiary, executor, or guardian
• Significant change in assets (inheritance, business sale, large purchase)
• Moving to a different state (estate laws vary significantly)
• Change in relationship with someone named in your plan
• Changes in tax law (like the potential estate tax exemption sunset)
• Major health diagnosis

Getting Started: Cost and Process

Basic estate planning documents (will, power of attorney, healthcare directive) can be done through online services for $100-$500 for simple situations. For more complex estates, an estate planning attorney typically charges $1,000-$3,000 for a basic package and more for trusts and advanced strategies.

The process usually involves an initial consultation where you discuss your situation and goals, a drafting phase where the attorney prepares documents, a review meeting where you go through everything, and a signing ceremony with witnesses and notarization. Start to finish, it typically takes 2-4 weeks.

What to Do Next

If you don't have any estate planning documents, start today. At minimum, create a will and designate powers of attorney. If you have children, naming a guardian is the most important thing you can do.

Next, audit your beneficiary designations across all financial accounts. Connect your accounts to Clarity to make sure you have a complete inventory — it's easy to forget about an old 401(k) from a previous employer or a life insurance policy you set up years ago. Once you can see everything in one place, work through the list and verify that each account's beneficiary designation reflects your current wishes.

This article is educational and does not constitute financial advice. Consider consulting a financial advisor for guidance specific to your situation.