Vanguard offers tips on creating a solid estate plan

Your retirement accounts are growing, you have life insurance through work, and maybe you own a home with some equity built up over the years. On paper, your financial situation looks fine, and your family will be taken care of when the time comes.

But here is the uncomfortable truth that Vanguard wants you to reckon with: Without the right legal documents in place, the state decides who gets what, a judge might pick a guardian for your minor children, and your loved ones could spend months tangled up in probate court.

Roughly 56% of American adults have no formal estate planning documents at all, according to the 2026 Trust & Will Estate Planning Report. Only 26% have a will (down from 31% the prior year), and even fewer, 14%, have established a trust.

Vanguard published a comprehensive estate planning guide designed to walk everyday investors through the entire process, from drafting a will to setting up powers of attorney and minimizing the tax hit on the wealth you leave behind.

The message is clear. Estate planning is not a luxury reserved for the ultra-wealthy.

Vanguard says most families overlook the documents that matter most

The foundation of any estate plan involves a small handful of documents that most people never get around to completing, according to Vanguard's guide. A will spells out how your property should be distributed and names an executor to carry out those instructions.

A trust acts as a legal container where assets can be managed and distributed on your terms, while powers of attorney designate trusted individuals to handle financial or medical decisions if you become unable to make them yourself.

"Once you're gone, it's a really hard time for your family. People don't always react in the best ways. Your estate plan gives them clarity on what to do and a chance to move on," said Anne Rhodes, chief legal officer for Wealth.com, Kiplinger reported.

Without a will, your state's intestacy laws dictate the distribution of everything you own, and those default rules rarely match what families would choose for themselves. A surviving spouse may not automatically receive the full estate, and blended families can face costly legal battles that drag on for years.

Beneficiary designations on retirement accounts and life insurance policies operate independently of your will, meaning an outdated form listing an ex-spouse can override the most carefully drafted legal documents you have.

The federal estate tax exemption now stands at $15 million per person

The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently raised the federal estate and gift tax exemption to $15 million per individual, or $30 million for married couples, with the amount indexed for inflation going forward.

The legislation eliminated the long-feared sunset provision of the Tax Cuts and Jobs Act of 2017 that would have slashed the exemption to roughly $7 million per person at the start of 2026, the Tax Foundation projected.

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The top federal estate tax rate remains at 40% for estates exceeding the exemption threshold, the IRS confirmed. That means a married couple with a combined estate under $30 million will owe zero federal estate tax, while assets above that line face a substantial hit.

The annual gift tax exclusion also remains at $19,000 per recipient for 2026, and married couples can combine their exclusions to transfer $38,000 per recipient each year without tapping into the lifetime exemption, the IRS confirmed.

Vanguard's guide notes that understanding which taxes apply to your specific situation is the first step in any effective strategy.

In addition to the federal estate tax, 12 states and the District of Columbia levy their own estate taxes, while five states impose inheritance taxes on beneficiaries who receive assets from a deceased relative's estate.

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Why beneficiary designations can sabotage your estate plan

One of the most common and destructive mistakes in estate planning involves outdated beneficiary designations, and Vanguard flags this issue prominently in its checklist.

Retirement accounts, life insurance policies, and payable-on-death bank accounts all transfer directly to whichever individual or entity is named on the beneficiary form, regardless of what your will or trust instructs.

A February 2026 federal appeals court case reinforced just how dangerous this oversight can be for families who fail to act. In Packaging Corporation of America Thrift Plan for Hourly Employees v. Langdon, the Seventh Circuit ruled that an ex-spouse was entitled to receive a deceased employee's retirement account because the beneficiary change request was submitted by fax rather than through the plan's required procedures, Cohen & Buckmann P.C. reported.

"At its core, estate planning involves creating a legal framework to manage your assets if you become incapacitated or pass away," Alaina Davalos, a wealth transfer advisor at Savant Wealth Management, wrote in a Savant article on proactive estate planning.

Essential documents include a financial power of attorney, medical power of attorney, and a will. Each document serves a distinct purpose. A financial power of attorney puts a trusted person in charge of paying bills, managing accounts, and handling other money matters when you can't, and a medical power of attorney gives that authority over treatment decisions to someone who knows your wishes.

Estate planning attorneys generally recommend filing a copy of the medical document with your primary care physician and your designated agent, so it's accessible the moment a hospital or clinician needs to see it.

Vanguard outlines estate tax strategies that could save your heirs thousands

Even with the higher $15 million federal exemption now permanently in place, Vanguard warns that estate tax exposure remains a real concern for families in states that impose their own levies at much lower thresholds.

Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, and Hawaii all collect state-level estate taxes, and their exemption thresholds typically fall well below the federal limit.

States that impose inheritance taxes on beneficiaries

• Kentucky, Nebraska, Pennsylvania, New Jersey, and Maryland all levy inheritance taxes, which are paid by the person receiving assets from the estate rather than by the estate itself, the Tax Foundation reports. Iowa repealed its inheritance tax effective Jan. 1, 2025.
• Maryland is the only state in the country that imposes both an estate tax and an inheritance tax, creating a double layer of tax exposure for residents with sizable estates.

Vanguard identifies several approaches that estate planning professionals commonly use to reduce this burden. Converting traditional retirement plan assets to a Roth IRA shifts the tax obligation to the account holder today, meaning beneficiaries inherit the account free of income taxes on future withdrawals.

Establishing an irrevocable trust can remove assets from a taxable estate entirely, though this tool involves permanently giving up control of those assets, the guide notes.

Vanguard says your estate plan should evolve every three to five years

Estate planning, as outlined in Vanguard's guide, is less about wealth size and more about clarity, control, and preparation. Core documents, updated beneficiary designations, and an understanding of applicable tax rules determine how smoothly assets transfer and how closely outcomes match original intentions.

The data show most adults either lack these documents or maintain outdated versions, leaving gaps that courts and default laws may fill. At the same time, shifting tax thresholds and state-level rules add complexity that many families overlook.

Taken together, these factors underscore a simple reality. Without a structured, up-to-date plan, even modest estates can face delays, disputes, and unintended outcomes.

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This story was originally published May 7, 2026 at 8:07 PM.