The Basics of Estate Planning

Estate planning is often seen as necessary only for wealthy or older people. However, if you have loved ones, you should have some type of estate plan regardless of how much money you have.

The Basics

Estate planning involves arranging for your family’s future after you’re gone. It enables you, rather than the court, to make key decisions about caring for your loved ones and how to distribute your property.

With a proper estate plan, you can address these major issues:

1. Who do you want as the executor to settle your estate? That person should be qualified, trustworthy, and understand your wishes.
2. How will any minor children be protected? This includes naming a guardian on the death of both parents and making decisions about the future financial security of the children.
3. How will your assets be distributed? Wills are used to designate who will receive your assets. Trusts may be useful for the ongoing management and distribution of your assets.
4. How can the costs of administering your estate be minimized? Proper planning can reduce probate fees and any estate taxes.

Federal Estate Taxes

The tax treatment of estates has been changing nearly every year for several years. The Tax Cuts and Jobs Act of 2017 brought significant changes, but many have been updated again with the 2025 One Big Beautiful Bill Act (OBBBA). These updates should encourage everyone to review their estate plans.

How does an estate get taxed?

The federal government levies a tax, payable by your estate, on the largest estates. The tax is charged on the value of the estate after allowable deductions. Deductions include burial expenses, existing debts, charitable contributions, and accrued taxes.

In addition, any assets left to a surviving spouse are not included in the taxable estate. After the estate tax is calculated, there is a credit against that tax. The result is that many estates pay no tax. The amount of the credit is increasing and below is a chart indicating the size of taxable estates that will be subject to tax after the credit.

The federal estate tax (and unified gift/estate/GST tax) applies at a top marginal rate of 40% on amounts above the basic exclusion amount (per individual; married couples can effectively double it via portability). The exclusion is now permanent at higher levels (made so by OBBBA, with annual inflation adjustments starting after 2026 in some cases).

You should note that the tax is based on the fair market value of your assets, not their original cost. For many individuals, the value of their stock portfolios or small business interests has increased significantly over the past few years.

Issues for Younger People

Choosing a guardian for your children is vital. If both parents pass away and no guardian is appointed, the court will decide who will care for your children. That is likely a decision you prefer to make yourself. Life insurance may be necessary to provide funds for the ongoing care and support of your family.

Issues for Older People

As people age and build wealth, the need for life insurance often decreases. Their estate plans tend to focus more on financial strategies—like reducing estate taxes, setting up trusts for surviving family members, and deciding who gets their financial assets and personal belongings.

Use an Expert to Create and Update Your Estate Plan

Estate planning is a serious task. Rules are complicated and can vary by state. A qualified attorney can help ensure your estate plan meets your goals.

An estate plan should be reviewed regularly, usually every 3 or 4 years, as your circumstances or laws change. Events such as the birth of children, changes in marital status, increases in income or wealth, or moving to a different state should also prompt a review of your estate plan.

The new (and confusing) rules should encourage nearly everyone to review their estate plan. It is crucial that your will and other documents fully reflect the new laws.