YOU MIGHT HAVE HEARD financial experts claim that IRAs, 401(k) plans and other retirement accounts are terrible assets to bequeath because the government will end up with more than 80% of the money. This is just a scare tactic by financial advisors trying to drum up business: Unless you’re subject to federal estate taxes and the account’s beneficiaries are in the top income tax bracket, the tax bill will be considerably smaller.
Still, your beneficiaries will have to pay income taxes as they draw down the traditional retirement accounts you bequeath.

A THIRD OF STATES have either an estate tax or an inheritance tax, and one of them has both. A complete list is available from McGuireWoods, Nolo and the Tax Foundation. State estate taxes are separate from the federal estate tax—and they typically kick in at much lower asset levels.
Kentucky, Nebraska, New Jersey and Pennsylvania all have inheritance taxes. Iowa also has an inheritance tax, but it disappears after 2024. An inheritance tax is levied not on the estate,

SPOUSES ARE FREE to give as much money as they wish to each other, both while they’re alive and also upon death. In other words, as long as your spouse is a U.S. citizen, you aren’t constrained by 2025’s $19,000 gift-tax exclusion or $13.99 million federal estate tax exclusion. This is known as the “unlimited marital deduction.”
Moreover, your federal estate tax exclusion is “portable.” Let’s say you die first and leave everything to your spouse,

YOU CAN LEAVE ANY amount to a spouse who is a U.S. citizen without worrying about federal estate taxes, thanks to the unlimited marital deduction. But if you bequeath a total of more than $13.61 million to other folks in 2024 or $13.99 million in 2025, federal estate taxes kick in at a 40% rate. This $14 million or so threshold is sometimes referred to as the unified credit—though this isn’t strictly correct, because the credit is the tax you avoid,

PONDER THE ASSETS you own that aren’t in a trust or inside a retirement account. We are typically talking about items such as your home, car and taxable financial accounts. Will these assets pass directly to your heirs, or will they go through probate and be governed by your will? It will depend on how they’re titled.
Assets held solely in your name will go to whomever you named in your will. One exception: If you title your bank and investment accounts as payable on death or transfer on death,

WHEN YOU OPEN a retirement account or purchase life insurance, you usually name beneficiaries to inherit these assets. This is also true when you set up a trust.
Because much of your wealth may be in IRAs, 401(k) plans and similar accounts, it’s crucial you have the right beneficiaries listed. Divorced? If you don’t change the beneficiaries on your retirement accounts, your ex-spouse may get the last laugh.
Whoever inherits your retirement accounts has to follow special rules when making withdrawals,

IF YOU’RE MARRIED, you enjoy certain tax privileges, such as the unlimited marital deduction, which we’ll tackle later in this chapter. But there is also a key obligation: You have to bequeath a minimum amount to your spouse. Exactly how much varies from state to state.
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Puerto Rico is also a community property jurisdiction. In Alaska, spouses may create community property by entering into a community property agreement,

YOU CAN DISCLAIM assets that are left to you in a will. At that point, the money disclaimed passes to the other heirs as though you had predeceased the person who had just died. A will might even have a disclaimer clause that specifies what will happen if money is disclaimed. When disclaiming, you can’t specify who should receive your portion of the inheritance, so the wording of the will is critical.
What’s the advantage of disclaiming?

THERE’S A DECENT chance that your will won’t determine what happens to the bulk of your wealth, because the fate of many assets depends on how they’re titled and the beneficiaries named. Still, it’s crucial to have a will that spells out who should receive those assets that are subject to probate.
Without it, you will die intestate. That means the disposition of your probate assets will be determined by state law—and your assets may not be divvied up the way you would have wanted.

INSTEAD OF GIVING cash, you could give away investments held in your taxable account that have appreciated in value. This can work well with charities, as we’ll explain later in this chapter. But with your children or other family members, it can be a mixed blessing.
Let’s say you give your children some shares you own. If you had paid $10 a share for the stock and it’s now worth $50, your children will assume your $10 cost basis.

IF YOU GIVE MONEY to your children, either now or when you die, there’s a risk they will quickly squander the money you so painstakingly amassed. Faced with this risk, some folks set up spendthrift trusts that parcel out the trusts’ assets to the beneficiaries slowly over time. You could avoid that complicated and costly step if you raise money-savvy children, a topic we touch on in the chapter on saving.
In fact, you might use your gifts to help your children,

YOU CAN GIVE $19,000 to as many individuals as you wish in 2025 without worrying about the gift tax. The 2024 limit is $18,000. This is the annual gift-tax exclusion. Do you and your spouse have three kids? In 2025, you could together give each of them $38,000, thus shrinking your estate by $114,000. There’s even a special provision just for 529 college plans that allows you to contribute five times the gift-tax exclusion in a single year and count it as your gift for the next five years.

IF YOU’RE UNDER AGE 50, you might focus on the first three items on the estate planning checklist below. Those already retired or approaching retirement should probably consider every item on the list. Here are some key components of a well-thought-out estate plan:

A will that specifies who should inherit those assets subject to probate. Drawing up a will becomes especially crucial once you have children, not least because you’ll want to name guardians for your kids.

THE PRIMARY GOAL of estate planning is simple: You want to make sure your assets end up with the right folks.
In all likelihood, you have already made a slew of estate planning decisions, perhaps without fully appreciating it. For instance, when you and your spouse bought the house and the car jointly with right of survivorship, you ensured your spouse would inherit both items should you die first.
Remember the IRA you opened years ago,

MOST OF US ARE ill-prepared for retirement, so we should be modest with our gifts to family and to charity during our lifetime. Instead, we might focus on how we’ll disburse our wealth after our death. Our kids and other family members won’t appreciate it if we give them a big hunk of our wealth today—and then ask for it back a decade later, when we’re impoverished retirees.
What if you have done a fine job of saving for retirement and other goals,