You’ve spent a lifetime working, saving, and building a better future for yourself, your loved ones, and perhaps charitable causes. But, eventually, there comes a moment when the goal shifts from growing and preserving your wealth to passing it on the right way.

While legacy planning is a delicate subject, that’s not enough of a reason to avoid it.

Your estate plan empowers the people you care about to do the things you’d want them to do. If those documents are not in place, the people around you are powerless to act when called upon. To make a difficult situation worse, your assets could be subject to unnecessary taxes, legal delays, and family disputes.

Your beneficiary and estate documents (as technical and riddled with legalese as they are) are the love letters to the people you care about.

Unfortunately, most Americans don’t have basic estate documents. A recent survey found that only 24% of adults have a will. Many delay estate planning, believing they don’t have enough assets to justify it, but this is a costly misconception.

Legacy planning is one of the greatest gifts you can leave behind, and this chapter will help you understand the key resources and strategies available to secure your family’s future.

Wills and Trusts Explained

Wills

A will is the simplest estate planning tool. It allows you to:

1. Designate who inherits your assets.
2. Name a guardian for minor children.
3. Establish a basic trust (called a testamentary trust) for beneficiaries.

For those with smaller estates and straightforward wishes, a will may be enough.

However, There’s one major drawback: wills must go through probate, a court-supervised process that can be costly, time-consuming, and public.

Trusts

A trust is a legal arrangement that provides more control over when and how your assets are distributed while avoiding probate. When you create a trust, you (the grantor) transfer assets to be managed by a trustee for the benefit of your beneficiaries.

There are different types of trusts, each serving specific purposes:

• Revocable living trusts allow you to maintain control of assets during your lifetime. You can serve as your own trustee and name a successor to take over upon incapacity or death. These trusts avoid probate but don’t protect assets from creditors or estate taxes.
• Irrevocable trusts offer stronger asset protection but require giving up control. These trusts can shield assets from creditors, help with Medicaid planning, and reduce estate taxes for high-net-worth individuals.
• Specialized trusts are designed for unique needs, such as special needs trusts (which provide for a disabled loved one without affecting their government benefits) or charitable remainder trusts (which allow you to leave assets to a cause you care about).

One of the biggest benefits of a trust is that assets held within it do not have to pass through the probate process. Many assume probate is a minor legal formality, but that’s rarely the case.

• It’s expensive: Probate costs typically range from 3% to 7% of an estate’s value.
• It’s time-consuming: While 98% of Americans believe probate takes less than a year, the average timeline is 20 months.
• It’s public: Wills become part of the public record, which means anyone can see the details of your estate.

A trust also allows you to control when and how your beneficiaries receive their inheritance. For example, a child could receive funds in staggered distributions (e.g., 25% at age 25, 50% at age 30, and the remainder at age 35) rather than inheriting everything at age 18. You can set conditions as well, such as funds being used only for education, home purchases, or other major life expenses.

Many financial accounts allow you to name a beneficiary directly, which means they automatically transfer to the designated person upon your passing — typically regardless of what your will says. This can include:

• Life insurance policies
• Retirement accounts (401(k)s, IRAs, pensions)
• Annuities
• Transfer-on-death (TOD) brokerage accounts

Because beneficiary designations often override your will, it’s important to update them regularly, especially after major life events, such as marriage, divorce, birth of a child, or death of a previous beneficiary. For example, if you remarried but forgot to update your 401(k) beneficiary, your ex-spouse could still inherit the account, even if your will states otherwise.

Power of Attorney and Health Care Directives Explained

When you think of estate planning, asset distribution probably comes to mind. But it’s equally important to consider what would happen if you were ever incapacitated. Fortunately, there are legal mechanisms you can establish to prevent problems down the road.

Financial Power of Attorney

A financial power of attorney (POA) allows you to designate someone to manage your finances if you’re unable to do so. The person you choose (your agent) can handle tasks like paying bills, managing investments, or selling property. There are two main POA types to be aware of:

• A durable POA remains in effect even if you become incapacitated.
• A springing POA only takes effect upon a specific event (e.g., if a doctor determines you can no longer make decisions for yourself).

Without a POA, Your loved ones may have to go through a costly, time-consuming court process to gain control over your financial affairs.

Health Care Directives

Just as a POA protects your finances, health care directives ensure your medical wishes are honored if you can’t make decisions yourself. These include:

• Health Care Power of Attorney: Names someone to make medical decisions on your behalf.
• Living Will (Advance Directive): Specifies your preferences for life support, resuscitation, and other critical medical treatments.

Just 26% of Americans have these directives in place, often simply due to a lack of awareness. As you can imagine, this can lead to very emotionally-taxing situations.

For example, If you’re in a coma and haven’t designated a health care POA, doctors will turn to your closest relatives to make decisions. But what if your family members disagree? One relative may want to authorize life-prolonging treatment, while another believes you wouldn’t want that. A living will and health care POA prevent any conflicts.

Charitable Giving and Philanthropy

Whether it’s advancing medical research, funding education, or supporting your local community, charitable giving allows you to create a lasting impact beyond your lifetime. Here are three common ways to incorporate philanthropy into your estate plan:

Donor-Advised Funds

A donor-advised fund (DAF) allows you to contribute cash, securities, or other assets to a charitable account managed by a sponsoring organization, such as a financial institution or community foundation.

You not only receive an immediate tax deduction for contributions but these funds can also grow tax-free. Once you find a charitable cause you wish to support, you can use money from your fund to provide a grant.

Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable trust designed to benefit both you (or another beneficiary) and a charity. When creating a CRT, you’d donate cash, stocks, or other assets to the trust and receive a partial tax deduction. The deduction amount is based on the type of trust, trust terms, projected growth, and projected income payments.

You’ll also name a beneficiary (which can be yourself). The trust would then distribute income to the beneficiary periodically, such as monthly or quarterly, so long as the total annual payout remained between 5% and 50% of the total value of the trust assets.

After the trust term ends, the remaining assets would be donated to a charity or foundation of your choice.

Direct Bequests in Wills

The simplest way to support a cause is through a direct bequest in your will or trust. You can specify a fixed amount, a percentage of your estate, or certain assets to go to a charity upon your passing. While this is the easiest approach, there’s no tax benefit in your lifetime, and you have less control over how funds are used.

Gifting Strategies

Many people want to share their wealth during their lifetime, whether to support loved ones, reduce estate taxes, or simply experience the joy of giving. However, gifting assets isn’t as straightforward as writing a check — there are tax rules to follow.

The IRS allows for two main gifting strategies:

Lifetime Gift & Estate Tax Exemption

As of 2025, individuals can transfer up to $13.99 million tax-free over their lifetime (or at death). Married couples can combine their exemptions, allowing them to transfer up to $27.98 million tax-free. Any amount beyond this is subject to federal estate and gift taxes, which can be as high as 40%.

Don’t forget to account for state regulations, too. Minnesota, for instance, is one of a handful of states that impose an estate tax in addition to the federal estate tax. The state exempts up to $3 million from estate taxes, but wealth above that threshold (known as your taxable estate) is taxed on a graduated scale from 13% to 16%.

As an example, let’s assume your total estate is worth $10.5 million.

• Your taxable estate would be worth $7.5 million ($10.5 million less $3 million exemption).
• $7.1 million of your taxable estate would be subject to a 13% tax rate, which would equate to $923,000 in taxes.
• The remaining $400,000 of your taxable estate would be taxed at 13.6% — or $54,400 in taxes.
• Your total Minnesota estate tax liability, in this scenario, would be $977,400 ($923,000 + $54,400).

Annual Gift Tax Exclusion

You can also give tax-free gifts up to the annual gift tax exclusion without counting toward your lifetime exemption.

In 2025, the IRS allows individuals to gift up to $19,000 per person per year. For example, a grandmother with three grandchildren could donate $19,000 to each grandchild every year ($57,000), without tapping into their lifetime exemption or triggering gift taxes. Along the same lines, if both grandparents contribute, they could transfer $38,000 per grandchild per year ($114,000) without touching their lifetime exemption.

Additionally, some direct payments are always tax-free, such as:

• Tuition payments (when paid directly to an educational institution)
• Medical expenses (when paid directly to the provider)

As you can see, strategic gifting can help families gradually transfer wealth, reduce estate tax exposure, and provide financial security for future generations.

Family Meetings and Transparent Planning

Even with careful estate planning, passing down wealth is not guaranteed to be a smooth process — wealth transfers fail across generations 70% of the time. Surprisingly, tax issues or legal complexities aren’t the primary reasons, as just 3% of failures stem from technical errors. Instead, 60% of breakdowns result from poor communication and lack of transparency within families.

Why does this happen?

Heirs may be unaware of their inheritance or the responsibilities that come with it. Siblings may have conflicting expectations, leading to disputes. And, in many cases, parents hesitate to discuss money, leaving children unprepared for wealth management.

The solution: proactive family discussions.

• Set clear expectations. Communicate how assets will be distributed to prevent confusion and conflict.
• Discuss financial values. Share the “why” behind your decisions, especially when structuring inheritances or trusts.
• Schedule regular check-ins. An annual financial review with heirs helps align expectations and update plans as needed.
• Incorporate professional guidance. Estate attorneys and wealth advisors can help facilitate discussions.

Famed investor Warren Buffett advises, “A rich person should leave his kids enough to do anything, but not enough to do nothing.”

Estate planning is, at a basic level, the transfer of assets — but it’s also the transfer of responsibility and stewardship. By fostering open conversations and including heirs in the planning process, you can help support a smoother wealth transition and family harmony.

Key Takeaways

• Wills and trusts serve different purposes. A will designates heirs and guardians for minor children but must go through probate. Trusts provide greater control, asset protection, and privacy by avoiding probate altogether.
• Beneficiary designations often override your will. Maintain up-to-date beneficiaries on life insurance policies, retirement accounts, and annuities, especially after major life events like marriage or divorce.
• A power of attorney and health care directives protect you if you become incapacitated. Without these documents, your family may face difficult legal battles to manage your finances or make medical decisions on your behalf.
• Charitable giving can be structured to provide both philanthropic impact and tax advantages. Donor-advised funds, charitable remainder trusts, and direct bequests in wills allow for strategic giving.
• Estate and gift tax strategies can help minimize tax burdens. Leverage exemptions, annual gifting limits, and direct payments for medical or educational expenses to reduce estate tax exposure.
• Transparent family discussions prevent conflicts and ensure a smooth transition. Set clear expectations, communicate financial values, and include heirs in planning discussions to avoid confusion and disputes.