FI Series # 10: Estate Planning for FI- a Playbook for Wealth Transfer
If you’re on the path to financial independence, you’re likely on track to accumulate seven figures between investments, home equity, and insurance. Don’t let the courts—or chance—decide where it goes. This guide gives you a practical, low-jargon plan to protect your family and transfer wealth intentionally.
Important: This article is general education, not tax or legal advice. Work with an estate-planning attorney licensed in your state and a qualified tax professional. A financial advisor can help coordinate your plan and beneficiary/titling choices, but can’t draft legal documents. If you’re cost-sensitive, vetted online services (e.g., Trust & Will, LegalZoom) can be a starting point—still consider a local attorney review.
1) Why plan now (even if you feel “not rich yet”)
The sum of your assets is bigger than it looks: brokerage + retirement accounts, home equity, plus life insurance death benefits.
A plan protects your spouse, minor kids, aging parents, or a dependent with special needs if someone dies or becomes incapacitated early.
Clean paperwork saves time, fees, and family friction later.
2) Incapacity planning (do this first)
Core medical & financial documents
Durable Financial Power of Attorney (POA): Authorizes a person you choose to handle money/legal matters if you’re incapacitated. A POA ends at death; it does not replace a will or trust.
Revocable Living Trust (RLT): Not mandatory, but helpful to avoid probate, provide continuity if you’re incapacitated, and control distributions after death. You still need a “pour-over” will.
Healthcare POA / Proxy + HIPAA release: Names who can make medical decisions and access records.
Advance Directive / Living Will: End-of-life care instructions.
“Emergency Binder” checklist
Keep a simple document (digital + printed) that lists:
Where accounts are held, how to access them, and how bills are paid (including auto-pay list).
Location of key docs (titles, deeds, insurance policies, estate docs, last 3 years of tax returns).
Contact info for your attorney, CPA, financial advisor, and insurance agent.
Digital estate: password manager master access, recovery codes, and settings like Apple Legacy Contact and Google’s Inactive Account Manager.
Tip: Store the binder in a fireproof safe; share access with your spouse/trustee.
3) How your assets actually transfer
Some ownership types and beneficiary designations pass outside your will.
Retirement plans/IRAs, life insurance, and TOD/POD accounts pass by beneficiary form—keep primary and contingent beneficiaries current and consider “per stirpes” elections to keep inheritances in the bloodline.
Joint ownership with right of survivorship can avoid probate for that asset, but may reduce flexibility/asset protection; don’t add owners casually.
Transfer-on-Death (TOD) deeds for real estate are available in many states and can bypass probate—ask your attorney about your state’s rules.
Why many FI households still add a Revocable Living Trust (RLT)
Keeps assets private and often faster/cheaper to administer than probate.
Lets you set guardrails (ages, milestones, co-trustees) for kids or spendthrift heirs; critical for minor children.
Works hand-in-hand with your POA/health docs for a complete plan.
4) Wills & Guardianship (non-negotiable if you have kids)
Your Will still matters, even with a trust—it names guardians for minors, appoints an executor/personal representative, and covers any assets not titled to the trust.
For a dependent with disabilities, ask your attorney about a Third-Party Special Needs Trust to preserve benefits while supplementing care. (ABLE accounts can complement the trust.)
5) Probate: what it is—and how to avoid the headaches
Downsides: court oversight, public record, costs, and often months of delay before heirs receive assets.
Avoid or minimize by:
Using beneficiary and POD/TOD designations on financial accounts,
Titling real estate via TOD deed where available,
Funding a revocable trust during life (not just signing it).
6) Smart lifetime gifting (give with a plan)
When possible, give during your lifetime—so you can see the impact, communicate your values to recipients, and adjust amounts or timing as circumstances change.
Annual exclusion gifts: In 2025 you can give $19,000 per recipient (double as a couple with gift-splitting). No gift tax return if you stay at/under the limit.
Lifetime exemption: Most families will not pay gift taxes due to the large Federal estate/gift exemption of $13.99M per person in 2025 (indexed). Gifts above annual exclusion chip away at this amount. Portability can let a surviving spouse use a deceased spouse’s unused exemption.
Medical payments: Pay providers directly and those amounts are unlimited and don’t use your annual/lifetime limits.
Direct-to-school tuition payments are unlimited and don’t count against your annual or lifetime gift limits—tuition only, paid straight to the institution; consider pairing with annual-exclusion gifts for non-tuition costs
529 “superfunding”: You can front-load 5 years of annual exclusions (2025: up to $95,000 per child; $190,000 as a couple) by filing Form 709 and electing the 5-year spread.
What not to gift lightly: Highly appreciated assets to individuals—your basis carries over, so heirs may owe capital gains later. (Charity is different; see next.)
7) Charitable giving that actually saves taxes
Donate appreciated securities from taxable accounts to avoid capital gains and claim a charitable deduction (subject to AGI limits—generally 60% of AGI for cash to public charities; 30% for long-term appreciated property).
Donor-Advised Fund (DAF): Great for bunching—contribute appreciated shares in a high-income year, claim a deduction now, grant to charities over time.
QCDs from IRAs (age 70½+): Send up to $108,000 per person in 2025 directly from IRAs to charity; counts toward RMDs but doesn’t hit AGI.
New 2025 law to watch: The One Big Beautiful Bill (OBBBA, July 2025) added a 0.5% of AGI “floor” for itemizers’ charitable deductions and created a new above-the-line deduction for non-itemizers up to $1,000 ($2,000 MFJ), effective in 2026—plan your bunching and QCDs with timing in mind.
Consider leaving pre-tax IRAs to charity (they pay no income tax) and step-up-eligible assets (brokerage/real estate) or Roth accounts to family.
8) Taxes at death
Step-up in basis. Most non-retirement assets (e.g., taxable brokerage, real estate) get a new basis at fair market value on the date of death, reducing heirs’ capital gains on prior appreciation. (Note: IRAs/401(k)s and other “income in respect of a decedent” don’t get a step-up.)
Inherited IRAs/401(k)s (distribution timing). Most non-spouse beneficiaries must empty the account by December 31 of the 10th year after death. Eligible Designated Beneficiaries (surviving spouse, minor child of the decedent, disabled/chronically ill individuals, or someone ≤10 years younger than the decedent) can generally “stretch” over life expectancy. Depending on facts (e.g., if the decedent died after their Required Beginning Date), annual RMDs in years 1–9 may also be required—check plan documents and current IRS guidance.
Tax & penalties on inherited accounts. Distributions from inherited traditional IRAs/401(k)s are taxable income to the beneficiary but not subject to the 10% early-withdrawal penalty (death exception).
For inherited Roth IRAs/401(k)s, withdrawals are generally tax-free if the original Roth has met the 5-year rule; if not, earnings can be taxable—still no 10% penalty due to the death exception.Federal estate tax. Most families won’t owe federal estate tax because the 2025 federal exemption is $13.99M per person (top rate up to 40%). If you could exceed the exemption, it’s important to plan ahead.
Portability. A surviving spouse can preserve a deceased spouse’s unused exemption by filing Form 706. If no filing was required, there’s an IRS extension window up to five years after death to make a late portability election
Lifetime giving to reduce estate size. Strategic lifetime gifts can remove both the gifted amount and its future growth from your taxable estate (e.g., gifts to an irrevocable trust).
State death taxes. In addition to federal rules, about 12 states + DC impose an estate tax and five–six states impose an inheritance tax, often with much lower thresholds—check the rules where you live and where you own property.
9) Putting it together: a simple action plan
Sign (and keep updated): Will, guardians, financial POA, healthcare POA, HIPAA, and—if appropriate—an RLT.
Title & beneficiaries: Add/confirm POD/TOD on bank/brokerage/retirement accounts; review after big life events.
Fund your trust (if you create one): retitle key taxable accounts and real property as advised by your attorney.
Prep the emergency binder (accounts, bills, passwords, professionals, locations of documents). Enable Apple Legacy/Google Inactive.
Gifting/charitable strategy: Use annual exclusion, 529 superfunding, and QCDs; plan bunching vs. the new OBBBA rules coming in 2026.
Review every 2–3 years or after marriage, birth, divorce, move, major asset changes, or new laws.
Summary
Get your incapacity docs done (POA, health care proxy, HIPAA, directive).
Use beneficiaries/TOD/POD and consider a revocable trust to avoid probate and control distributions for minors.
Gifts: $19k per recipient (2025); tuition/medical direct payments are unlimited; 529 superfunding up to $95k ($190k MFJ).
Charity: Prefer appreciated securities, DAFs, and QCDs (up to $108k in 2025). OBBBA adds a 0.5% AGI floor for itemizers and a new 2026-on non-itemizer deduction ($1k/$2k). IRS
At death: Non-retirement assets generally get a basis step-up; most non-spouse heirs of IRAs face the 10-year rule; federal exemption is $13.99M per person for 2025, portability available; check state taxes.
🔗 This post is part of the Financial Independence Blog Series.
Learn how to access retirement accounts early and keep more of your money through smart tax planning.
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