Estate Planning Basics for Retirees

The most common failure is not absence of a will but inconsistency between documents, particularly between a will and beneficiary designations, which do not interact the way people assume.

The core documents

A will directs distribution of assets that pass through probate, names an executor, and — importantly for those with minor dependants — names guardians.

A durable power of attorney authorises someone to manage financial and legal matters if you become incapacitated. Without one, family members may need to petition a court for guardianship or conservatorship, which is slow, public and expensive.

A healthcare proxy or medical power of attorney appoints someone to make medical decisions on your behalf. An advance directive or living will states your wishes about treatment, particularly end-of-life care.

Together these four cover most situations. A revocable living trust is added where probate avoidance, privacy or property in multiple states is relevant.

Beneficiary designations override the will

Retirement accounts, life insurance policies, annuities and payable-on-death bank accounts pass directly to named beneficiaries, outside probate, regardless of what the will says.

This produces the recurring and avoidable outcome where an ex-spouse named on a 401(k) decades ago inherits it despite a subsequent will directing otherwise. Courts generally uphold the designation.

Review every designation after any marriage, divorce, birth or death, and name contingent beneficiaries as well as primary ones. This review costs nothing and prevents the most common estate planning failure.

Probate and whether to avoid it

Probate is the court process validating a will and supervising distribution. It is public, takes months, and involves costs that vary substantially by state.

Revocable living trusts avoid probate for assets titled into the trust, which also provides privacy and simplifies handling property in multiple states. The trust must actually be funded — a common error is creating the trust and never transferring assets into it, which achieves nothing.

In states with simpler and cheaper probate, and for straightforward estates, a will alone may be entirely adequate. The trust is a tool for specific circumstances rather than a universal recommendation.

Taxes

The federal estate tax exemption is high enough that relatively few estates owe federal estate tax, though the exemption amount is subject to legislative change.

Several states impose their own estate or inheritance taxes at considerably lower thresholds, so state residence matters. Inheritance taxes, where they exist, are levied on beneficiaries and rates often depend on relationship to the deceased.

Inherited retirement accounts carry their own rules, including the requirement for many non-spouse beneficiaries to withdraw the full balance within ten years following the SECURE Act, which has meaningful income tax consequences for beneficiaries.

Digital assets and practical records

Online accounts, cryptocurrency, photographs and email are frequently overlooked, and executors regularly cannot access them. Most states have adopted legislation allowing fiduciary access, but practical access still requires knowing what exists.

Maintain a list of accounts and where credentials are stored, kept securely and separately from the documents themselves. A password manager with emergency access provisions handles this well.

Also leave a practical letter of instruction: location of documents, professional contacts, insurance policies, funeral preferences. It has no legal force and is enormously helpful to whoever handles matters.

Keeping it current

Review every three to five years and after any significant life event or move to another state, since estate law is state-specific and documents drafted elsewhere may function differently.

Tell your executor and agents that they have been appointed and where the documents are. Documents nobody can find serve no purpose.