Estate Planning for New Millionaires: What You Actually Need (and What You Can Skip)

At $1M–$5M, you won't owe estate tax — the 2026 federal exemption is $15 million per person. But "no estate tax" doesn't mean "no estate plan." Beneficiary designation errors, inherited IRA tax bombs, and probate delays can cost your heirs more than estate tax ever would. Here's the honest checklist for your net worth tier.

First: you won't owe estate tax

The federal estate tax exemption for 2026 is $15,000,000 per individual — $30,000,000 for a married couple using portability.¹ This exemption is now permanent under the One Big Beautiful Bill Act (OBBBA, July 2025), which eliminated the scheduled 2026 sunset that would have dropped the exemption to ~$7M. Unless your estate grows well above $15M, estate tax is not your problem.

State estate taxes are a different story. Massachusetts, Oregon, and several others have lower exemptions ($1M–$2M). If you live in one of these states — or own real estate there — state-level planning matters and should be part of your conversation with an estate attorney.

What you actually need at $1M–$5M

Your estate plan at this wealth level should consist of five core documents. A basic version from an estate attorney runs $2,000–$5,000 in most metro areas — often the highest-ROI thing you'll spend money on relative to its complexity.

1. Revocable Living Trust

A revocable trust holds your taxable investment accounts, real estate, and other non-retirement assets. At your death, assets in the trust pass to beneficiaries without probate — the court process that a will alone requires. Probate can take 6–18 months and cost 2–5% of probate assets, depending on your state. More importantly, it's public record.

Retirement accounts (IRAs, 401(k)s) and life insurance already bypass probate via beneficiary designation — they don't need to go in the trust. But your taxable brokerage accounts, bank accounts, and real estate typically do.

"Funding the trust" — retitling assets into the trust's name — is 80% of the work and something many people skip after paying for the document. An unfunded trust is nearly useless. Make sure you actually complete this step with your advisor and attorney.

2. Pour-Over Will

A backstop that captures any asset you forgot to retitle into the trust. The will "pours" those assets into your trust at death. You still need a will even with a trust — this is why.

3. Durable Power of Attorney

Designates who manages your finances if you become incapacitated. Without it, your family may need a court-ordered conservatorship to pay your bills or manage investments while you're alive but incapacitated — an expensive, time-consuming process that can take months. This document costs almost nothing extra to add to your estate plan and is irreplaceable if you ever need it.

4. Healthcare Proxy and Living Will

Who makes medical decisions if you can't? What interventions do you want or not want? These are separate from your financial documents but equally essential. Your financial advisor doesn't draft these — your estate attorney does, or a healthcare attorney.

5. HIPAA Authorization

Without this, doctors may legally refuse to discuss your condition with your spouse or adult children even in an emergency. A one-page form fixes this.

The most common $100,000+ mistake: stale beneficiary designations

Your IRA, 401(k), Roth IRA, and life insurance bypass your will and your trust entirely. They go directly to whoever is named on the beneficiary designation form — regardless of what your will says. This is one of the most important documents in your estate plan, and it's a form you filled out years ago when you opened the account.

Common disasters that happen every year:

• Ex-spouse as beneficiary. Your 2009 divorce decree doesn't override a 2007 beneficiary form. The IRA goes to the ex. Courts have repeatedly upheld this.
• "My estate" listed as beneficiary. This routes the IRA through probate and strips inherited-IRA tax treatment from your heirs.
• Deceased parent still listed. The account may go through intestacy rules in your state rather than to your intended heir.
• No contingent beneficiary named. If your primary beneficiary predeceases you and there's no contingent, the account defaults to your estate.

The inherited IRA "10-year bomb" — why IRAs are the worst asset to leave a working heir

Before 2020, non-spouse IRA beneficiaries could "stretch" distributions over their lifetime — paying modest taxes on small annual withdrawals. The SECURE Act of 2019 eliminated this for most non-spouse beneficiaries. Today, a non-spouse inheritor (your adult child, a sibling, a non-spouse partner) must empty the inherited IRA within 10 years of your death.²

In July 2024, the IRS finalized regulations in T.D. 10001 that added an additional requirement: if you died after your required beginning date for RMDs (age 73 for those born 1951–1959; age 75 for those born 1960+), your non-spouse beneficiary must also take annual minimum distributions in years 1–9, then deplete the rest in year 10.² No more "wait until year 10 and take it all." The IRS waived penalties for this requirement through 2024; starting in 2025, the annual RMD requirement is fully enforced.

The tax math on a $500K traditional IRA left to a 45-year-old child:

• Your child is in their peak earning years — say, $200K W-2 income, already in the 32% federal bracket.
• They must take $50K+ per year from the inherited IRA for 10 years.
• Each distribution stacks on top of their salary, pushing them into the 35–37% bracket.
• Federal tax alone on $500K of distributions: $175,000–$185,000. State income tax on top of that.
• Roth IRA left to the same child: $500K of tax-free growth and tax-free distributions over 10 years.

What you can do about it:

• Roth conversions in low-income years. The best time to convert is between retirement and Social Security / RMD onset — often ages 60–72. You pay tax at current rates; your heirs inherit tax-free. See our Backdoor Roth guide for the mechanics.
• Name a charity as IRA beneficiary, taxable accounts to family. Charities pay no income tax on inherited IRA distributions. Your heirs inherit the taxable brokerage account (which gets a stepped-up basis — see below). This "asset swap" can be worth six figures in aggregate tax savings.
• Qualified charitable distributions (QCDs) during your lifetime. If you're 70½ or older, you can direct up to $111,000 per year from your IRA directly to charity — counts toward your RMD, tax-free.³ This drains the IRA before it becomes a problem for your heirs.

Step-up in basis: the free lunch that most millionaires underutilize

When you die holding appreciated assets in a taxable account, your heirs' cost basis is reset to the fair market value at your date of death — the "step-up in basis" under IRC § 1014.⁴ Any capital gains that accrued during your lifetime are permanently forgiven.

Example: You bought Apple stock for $50,000 in 2010. It's worth $400,000 today. If you sell, you owe capital gains tax on $350,000 of gains — at 23.8% federal (20% LTCG + 3.8% NIIT) for most millionaires, that's $83,300 in federal tax. If you hold it until death and your heir inherits it, their basis is $400,000. They could sell the next day for $400,000 and owe zero tax on the gain.

Retirement accounts don't get this treatment. Traditional IRAs pass entirely as ordinary income to heirs. Roth IRAs pass tax-free but also don't get a step-up (they just stay tax-free).

The planning implication: in general, favor leaving taxable accounts to individual heirs and IRAs to charities (or converting IRAs to Roth while you're alive). Your fee-only advisor can model the household-wide tax impact across both strategies.

Annual gifting during your lifetime

The 2026 annual gift exclusion is $19,000 per recipient (unchanged from 2025).¹ You and your spouse can give $38,000 per year to each child or grandchild with no gift tax filing required. On five grandchildren, that's $190,000 per year removed from your taxable estate without touching your $15M lifetime exemption.

Payments made directly to an educational institution for tuition — or directly to a healthcare provider for medical expenses — are unlimited and don't count against the annual exclusion. Writing a check to Harvard for a grandchild's tuition bypasses gift tax entirely, regardless of amount.

At $1M–$5M, annual gifting is typically less urgent than beneficiary designation cleanup and IRA/Roth positioning, but it's free money once you've done the basics.

Trusts to skip at $1M–$5M

You'll see estate attorneys pitch SLATs (Spousal Lifetime Access Trusts), ILITs (Irrevocable Life Insurance Trusts), GRATs (Grantor Retained Annuity Trusts), and IDGTs (Intentionally Defective Grantor Trusts). These are sophisticated tools for estates approaching or exceeding the federal exemption — typically $10M+. Below $5M with a $15M permanent exemption, the legal fees and complexity outweigh the benefit in most cases. A good estate attorney will tell you this. One who leads with these tools for a $2M estate may be optimizing for their billing.

How a fee-only financial advisor fits in

An estate attorney drafts the documents. A fee-only financial advisor coordinates the financial pieces the attorney doesn't manage: titling accounts into the trust, verifying beneficiary designations across all accounts, modeling Roth conversion scenarios, and integrating estate planning with investment and tax strategy across the household. These two professionals should talk to each other — ideally through you, with meeting notes — so neither is optimizing in a vacuum.

If your current advisor hasn't asked to see your estate documents, that's a gap worth addressing.

Sources

1. IRS — Tax Inflation Adjustments for Tax Year 2026 (including OBBBA amendments). Federal estate and gift tax exemption: $15,000,000 per individual. Annual gift exclusion: $19,000 per recipient. Values verified April 2026.
2. IRS Publication 590-B — Distributions from IRAs; T.D. 10001 (July 2024) — IRS Final RMD Regulations. Non-spouse beneficiaries subject to 10-year rule; annual RMDs required in years 1–9 when decedent died after RBD (age 73 or 75 depending on birth year per SECURE 2.0 § 107). Penalty for missed inherited-IRA RMD: 25% of amount not distributed (reducible to 10% if corrected timely).
3. IRS — QCD rules: IRC § 408(d)(8). 2026 QCD limit: $111,000 per taxpayer per IRS inflation adjustments.
4. IRC § 1014 — Basis of Property Acquired from a Decedent (step-up in basis). Applies to property included in the gross estate; taxable accounts receive basis equal to FMV at date of death. Retirement accounts (IRAs, 401(k)s) are not eligible for step-up.

Estate and gift tax values verified against 2026 IRS inflation adjustments and OBBBA (enacted July 2025). Inherited IRA rules reflect T.D. 10001 final regulations, effective for 2025 and later tax years.