Key facts
- A will is essential for a complete estate plan, even with assets like IRAs and 401(k)s that typically pass by beneficiary designation.
- A will directs the distribution of assets without beneficiaries or joint owners, preventing state intestacy laws from deciding.
- A will allows individuals to name their personal representative (executor) to settle their affairs.
- A will provides instructions for "what if" scenarios, such as both spouses dying simultaneously or a beneficiary predeceasing them.
- Retirement account beneficiary designations must be precise, including primary and contingent beneficiaries, and kept current.
- Federal law typically grants spouses automatic rights to 401(k)s, requiring notarized spousal consent to name a non-spouse beneficiary.
A childless couple in their 50s with $2 million in IRAs and 401(k)s still requires a will, even though these retirement accounts typically bypass probate through beneficiary designations. A will serves as the foundation of an estate plan by directing assets that lack beneficiaries, such as personal property, cars, or future inheritances.
Without a will, state intestacy laws dictate asset distribution, which may result in unintended heirs or a division of property that conflicts with the couple's wishes. The court would also appoint an executor, potentially leading to a slower and more expensive process than if the couple had named their own personal representative. A will also provides a plan for "what if" scenarios, such as both spouses dying simultaneously or a named beneficiary predeceasing them, and can coordinate with a revocable trust if one is established.
Retirement account beneficiary designations are critical and must be precise, including primary and contingent beneficiaries. It is important to keep these forms current and consistent across all accounts. Federal law often grants spouses automatic rights to 401(k)s, necessitating notarized spousal consent to name a non-spouse beneficiary. Naming an estate or most trusts as a beneficiary of traditional IRAs can accelerate taxes and limit options, especially considering the SECURE Act's 10-year rule for non-spouse heirs, which requires inherited IRAs to be emptied within a decade, creating taxable income.
Tax-smart strategies for child-free couples include using pre-tax accounts like traditional IRAs and 401(k)s for charitable bequests, as charities are tax-exempt. Roth or taxable assets can be left to individuals. Qualified Charitable Distributions (QCDs) allow individuals aged 70½ and older to donate up to $105,000 annually directly from IRAs to charity, reducing future required minimum distributions and taxable income. While the couple is below the federal estate tax exemption of $13.61 million per person in 2024, state estate or inheritance taxes can apply at lower thresholds, such as $1 million in Oregon or $2 million in Massachusetts. A revocable living trust is an optional but useful tool for probate avoidance, privacy, and smoother management during incapacity, especially for those owning property in multiple states.