Estate Planning Basics: Wills, Trusts, and Beneficiary Designations

The $13.61 Million Threshold and Why Most Estates Still Need a Plan

In 2024, the federal estate tax exemption stands at $13.61 million per individual — $27.22 million for married couples using portability. At first glance, this number seems to put estate taxes beyond the concern of nearly everyone. But the exemption is scheduled to sunset after December 31, 2025, potentially reverting to roughly $7 million adjusted for inflation. Fewer than 0.2% of estates currently owe federal estate tax, yet a poorly constructed estate plan can still send assets through costly probate, trigger unnecessary state taxes, and leave heirs in conflict for years.

Estate planning is not exclusively a tax strategy. It is the legal architecture through which a person directs who receives their property, who makes medical and financial decisions during incapacity, and who raises minor children if both parents die. Every adult over 18 benefits from at least a basic plan.

Wills: The Foundation That Cannot Stand Alone

A last will and testament directs the distribution of probate assets — property owned solely in a decedent's name without a designated beneficiary. The will also names an executor (or personal representative) to administer the estate and, critically for parents, designates a guardian for minor children.

Wills have one unavoidable limitation: they must pass through probate, the court-supervised process that validates the document and authorizes distributions. Probate timelines vary sharply by jurisdiction — averaging 9 months in California (which has some of the most complex probate law) but often completing in 3–4 months in states like Florida. Court fees, attorney fees, and executor commissions typically consume 3–7% of the gross estate value.

What Probate Does Not Control

Assets with beneficiary designations — life insurance policies, IRAs, 401(k)s, annuities, payable-on-death (POD) bank accounts, and transfer-on-death (TOD) investment accounts — pass entirely outside the will. Joint tenancy with right of survivorship property also bypasses probate. A will that contradicts a beneficiary designation always loses. The designation wins. This rule catches many families off guard when an ex-spouse remains the named beneficiary on a life insurance policy years after a divorce.

Trusts: Avoiding Probate and Planning for Incapacity

A trust is a legal arrangement in which a trustee holds property for the benefit of named beneficiaries. The revocable living trust (RLT) is the most common estate planning tool for avoiding probate, because assets titled in the trust's name never become part of the probate estate. The grantor typically serves as their own trustee during their lifetime and names a successor trustee to manage and distribute assets upon death or incapacity — without court involvement.

Irrevocable trusts serve different purposes: removing assets from the taxable estate, qualifying for Medicaid, or protecting assets from creditors. Once established, they generally cannot be amended without beneficiary consent and court approval.

Will vs. Trust: Asset Transfer Comparison

Feature	Will	Revocable Living Trust
Avoids probate	No	Yes (if funded)
Effective at	Death only	Death or incapacity
Public record	Yes	No
Can name guardian	Yes	No
Cost to establish	$300–$1,000	$1,500–$3,000+
Requires ongoing maintenance	Minimal	Asset re-titling required

State Estate Taxes: The Hidden Liability

Seventeen states plus the District of Columbia impose a separate state-level estate tax, with exemptions far below the federal threshold. Oregon and Massachusetts have the lowest exemptions at $1 million. Washington State's top rate reaches 20%. Residents of these states who own real estate or business interests may owe substantial state tax even when their estate falls well below the federal exemption.

State	2024 Exemption	Top Rate
Massachusetts	$2,000,000	16%
Oregon	$1,000,000	16%
Washington	$2,193,000	20%
Illinois	$4,000,000	16%
New York	$6,940,000	16%
Minnesota	$3,000,000	16%
Maryland	$5,000,000	16%
Connecticut	$13,610,000	12%

Community Property vs. Common Law States

Nine states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — follow community property law, under which most assets acquired during marriage are owned 50/50 by both spouses by default. This has significant estate planning implications: a surviving spouse in a community property state automatically owns half the community property regardless of the will, and both halves receive a full stepped-up cost basis at the first death, potentially eliminating capital gains on appreciated assets.

The 41 remaining states follow common law, where assets titled in one spouse's name belong solely to that spouse. Married couples in common law states must deliberately structure joint ownership or use trusts to achieve comparable outcomes.

Intestacy: What Happens Without a Plan

Dying without a valid will triggers intestacy — state-defined default rules that distribute assets. These rules prioritize a surviving spouse and direct descendants, but the shares vary substantially. In some states, a surviving spouse shares the estate equally with the decedent's children from prior relationships. Unmarried partners, regardless of relationship length, receive nothing under intestacy in virtually every state.

Intestacy never reflects what most people actually want. It is also more expensive: an administrator must be appointed by the court, often requiring bond, and the process can be contested by any interested party.

The Pour-Over Will and Letter of Instruction

Most estate plans pairing a revocable living trust with a pour-over will — a will that directs any assets not yet titled in the trust at death to "pour over" into the trust. The pour-over will acts as a safety net but still requires probate for the assets it captures. Assets inadvertently left outside the trust and lacking a beneficiary designation must pass through this process before reaching the trust's beneficiaries.

A letter of instruction is not a legal document but a practical companion to the formal plan. It typically contains usernames and passwords, locations of important documents, funeral preferences, and guidance for the executor — information that no attorney can draft because it changes constantly.

Building a Plan That Works

Effective estate planning is not a one-time event. Life changes — marriages, divorces, births, deaths, moves between states, and business ownership — all create the need for updates. The beneficiary designations on retirement accounts and life insurance should be reviewed after every major life event, because no will can override them. An estate plan reviewed every three to five years, and after any significant change, is far more likely to work as intended than one signed and filed away decades ago. The documents do not plan themselves.

Disclaimer: This article is for general informational purposes only and does not constitute legal or financial advice. Estate planning laws vary significantly by state and individual circumstances. Consult a qualified estate planning attorney for guidance specific to your situation.