Estate Planning for Families Who Want to Get It Right, Not Just Get It Done

Most people don't put estate planning on the calendar voluntarily. It may sit on the to-do list for years. Important, technically, but it's easy to push off.

Then something might happen.

A parent passes away and the family spends eighteen months in a probate process nobody understood. A business partner dies without a buy-sell agreement and the surviving owners end up in a legal fight with his estate. A friend gets a diagnosis and realizes nobody has the legal authority to help them.

That's usually when estate planning stops being a someday thing.

Here's what many people misunderstand about it: estate planning isn't only about what happens after death. It's also about maintaining control over important decisions. Who makes decisions for you if you can't make them yourself. Where your money goes and how. Whether your family deals with a court process or a smoother transfer during an already hard time.

The Four Primary Documents

There are four primary documents that form the foundation of many estate plans. A will. A durable power of attorney. A healthcare directive. And a HIPAA authorization.

Most people have one or two. Almost nobody has all four that are current and actually signed. "Current and actually signed" is key here.

A will tells the world who gets what, names an executor to handle the process, and if you have minor kids, names a guardian. What a will doesn't do is control everything. Retirement accounts, life insurance, and jointly owned assets generally pass according to ownership or beneficiary designation rather than the will. They generally go to whoever is named on the beneficiary form, regardless of what the will says.

That distinction trips people up more than almost anything else in estate planning. You can have a perfectly written will that says everything goes to your kids, and your IRA can still go to your ex-spouse if you never updated the beneficiary form. In that situation, the beneficiary designation would generally control the disposition of that account.

A durable power of attorney names someone to handle your finances if you become unable to. Without it, your family may need to go to court to manage certain financial matters on your behalf. That process generally takes time and money and often happens when families have the least bandwidth for it.

A healthcare directive outlines your medical wishes and names someone to make those decisions if you can't. A HIPAA authorization lets the people you trust actually talk to your doctors. Without it, they may not be able to get any information about your care even if they're standing in the same room.

Beneficiary Designations May Matter More Than the Will

Retirement accounts, life insurance policies, annuities, and transfer-on-death accounts generally pass directly to whoever is named on the beneficiary form. Not through the will. Not through probate. Straight to the named beneficiary. I think many people overlook just how important updating beneficiary designation forms really is.

A beneficiary form filled out when an account was opened might name a parent who has since passed, an ex-spouse, or a sibling whose circumstances have changed. That form stays in effect until someone updates it.

Another common mistake is naming the estate as beneficiary. When a retirement account passes to an estate rather than a specific person, it may lose certain distribution options and may be subject to a faster payout timeline. Depending on the circumstances, naming an individual beneficiary may provide greater flexibility than naming the estate.

Reviewing beneficiary designations on all accounts at least once a year, or after any big life change, is a simple step that can help ensure they continue to reflect your wishes.

Trusts: What They Do and What They Don't Do

A revocable living trust is one of the more common tools used in estate planning. One primary benefit is that assets properly titled in the trust may avoid probate entirely. This may reduce court involvement, provide additional privacy and streamline the transfer process.

A trust can also help during your lifetime if you become incapacitated. Your successor trustee may be able to step in right away to manage trust assets without needing court involvement. A will generally doesn't provide the same incapacity-planning features.

What a trust can't do is work on its own. A trust that was drafted but never funded, meaning the assets were never retitled into the trust, is just a document in a folder and may not achieve its intended purpose. The funding step is where a lot of estate plans can fall short.

Whether a trust makes sense depends on how much you have, the complexity of your family situation, asset ownership, and what you're trying to accomplish. For simpler situations, a will with current beneficiary designations may address many core planning needs. For families with larger estates, property in multiple states, blended families, or minor children, a trust may be worth considering as part of an overall estate plan.

Estate Taxes: Who Actually Needs to Worry

In 2026, the federal estate tax exemption is $15 million per person, or $30 million for a married couple. Assets above those thresholds may be subject to federal estate taxes.

Most families won't be in that range. But for business owners with growing operations, families with substantial real estate, or people who've accumulated significant wealth over a long career, may benefit from keeping an eye on their estate's potential tax exposure.

One strategy often used in estate planning is annual gifting. In 2026, each person can give up to $19,000 per recipient each year without using any of the lifetime exemption. A married couple can give $38,000 per recipient each year .

Paying tuition or medical bills directly to the educational institution or healthcare provider may also provide planning opportunities under current tax rules. This may be a useful option for families who might want to help the next generation without chipping away at the exemption.

If you live in South Dakota, there is currently no state estate tax and no inheritance tax. South Dakota is also often cited for its trust-friendly legal framework, which may offer planning advantages for certain families depending on their objectives and circumstances.

When to Take Another Look

An estate plan isn't something you do once and file away. It needs to keep up with your life.

Big life changes that usually call for a review: marriage, divorce, a new child or grandchild, the death of someone named in the documents, a significant change in what you own, or a move to a different state. If documents haven't been looked at in five years or more, it may be worth checking that they still reflect your wishes and current circumstances.

This is especially true for beneficiary designations. They're easy to forget and they can create unintended outcomes if they're out of date.

Worth a Conversation

Most families we work with have some version of an estate plan. What they're usually missing is a check to make sure it still does what they think it does. A beneficiary form that hasn't been updated in ten years. A trust that was never funded. Documents that named someone who's no longer the right choice. One conversation usually surfaces what needs attention. If you think your estate plan might need attention and are wondering how it fits into your plan, our financial planning page can be a good place to start.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.