🎯 In 30 seconds: Most adults need four things: beneficiary forms on every account, a will, a durable financial power of attorney, and a health care directive. Beneficiary forms carry the most weight and get the least attention: they usually decide who gets a retirement account or life insurance, even if your will says something else. You do not need to be wealthy. For 2026 the federal estate tax only applies above $15 million.
The four documents at a glance
| Document | What it does | When it matters |
|---|---|---|
| Beneficiary designations (and POD/TOD) | Names who receives a specific account or policy directly | At death; usually skips probate |
| Will | Says who gets everything else, names an executor, and can nominate a guardian for minor children | At death; goes through probate court |
| Durable financial power of attorney | Lets someone you choose (your “agent”) handle money and property for you | While you are alive, including if you cannot act yourself |
| Health care directive | Names who makes medical decisions for you and records your wishes (often a health care proxy plus a living will) | While you are alive but unable to decide |
Beneficiary forms: the document that wins
Retirement accounts, life insurance, and many bank and brokerage accounts let you name a beneficiary. These pass by contract, outside your will. FINRA gives a clear example for brokerage accounts: if your will splits an account between two children but the transfer-on-death form names only one, that one child gets it and does not have to share.
- POD (payable on death) works for bank accounts and CDs. TOD (transfer on death) works for brokerage accounts, and some states allow it for vehicles or real estate.
- Name a primary and a contingent (backup) beneficiary on every account.
- For a 401(k), federal rules generally make your spouse the beneficiary unless the spouse signs a written waiver.
- Leaving money directly to a minor child can mean a court has to appoint someone to manage it. Many parents name a trust or an adult custodian instead; a lawyer can set that up.
- Divorce does not always update forms automatically. Change them yourself.
Worked example: the form nobody updated
Priya, 34, is married with a baby. Her will leaves everything to her husband, Dev. But:
| Life insurance through work, $100,000 | Beneficiary: her brother, named when she was 24 |
| Roth IRA, $28,000 | No beneficiary named |
| Checking and savings, $12,000 | In her name only, no POD |
| Brokerage account, $9,000 | TOD to Dev |
If Priya died tomorrow, her brother would receive the $100,000, and the insurer would pay him regardless of the will. The Roth IRA would follow the IRA custodian’s default rules, often to her estate, which can mean probate. The bank money would go through probate under her will. Only the $9,000 brokerage account would go straight to Dev. Ten minutes on three websites would fix all of it: name Dev as primary, a trust or custodian for the baby as contingent, and add POD to the bank accounts.
The will: what it does and what it does not
- It covers property that has no beneficiary form and is in your name alone.
- It names an executor, the person who pays final bills and hands out what is left.
- It lets parents nominate a guardian for minor children. Without one, a court decides with no word from you.
- Without any will, your state’s law decides who inherits, in a fixed order that may not match your wishes, especially for unmarried partners and stepchildren.
Signing rules (witnesses, notary) differ by state, so a will that is not signed properly may not count. Options range from a lawyer, to legal aid for people with lower incomes, to state-specific forms and software. People with a blended family, a business, a child with special needs or property in more than one state usually benefit from a lawyer.
Powers of attorney
A durable financial power of attorney names an agent who can pay your bills, deal with your bank and file your taxes if you are in an accident or become ill. “Durable” means it keeps working if you become unable to decide for yourself. Without one, your family may have to ask a court to appoint a guardian or conservator, which is slower and costs more.
The CFPB’s free guides for people named as agents spell out the job: act only in your best interest, manage money carefully, keep your money separate from theirs, and keep good records. Choose someone trustworthy and organized, and name a backup. A health care proxy is the medical version, and a living will records your wishes about treatment.
Taxes: probably not your problem
The federal estate tax only applies to estates over the basic exclusion amount, which the IRS lists as $15 million for deaths in 2026. Some states have their own estate or inheritance tax at much lower levels, so check your state. For most families, the real costs of poor planning are delay, court fees and money landing with the wrong person, not tax.
- List every account and policy: bank, retirement, brokerage, life insurance (work and personal), HSA.
- Log in to each and check the primary and contingent beneficiaries.
- Add POD or TOD where your bank or broker offers it.
- Make or update a will, and nominate a guardian if you have kids.
- Sign a durable financial power of attorney and a health care directive.
- Write a short letter telling your executor where documents are and how to reach your accounts (not your passwords in plain text; use a password manager’s emergency access feature).
- Set a reminder to review after marriage, divorce, a birth or a death. The Money checklists for big life events page under Secure Your Future covers those moments.
- Your will leaves everything to your spouse, but your life insurance names your sibling. Who usually gets the insurance? Answer: Your sibling. The beneficiary form controls.
- What does “durable” mean in a durable power of attorney? Answer: It keeps working if you become unable to make decisions.
- What happens to a minor child’s guardianship if there is no will? Answer: A court decides without your input.
- Above what amount does the federal estate tax apply for 2026? Answer: $15 million.