Complete Guide to Estate Planning

Most people have more money sitting in their retirement accounts than anywhere else—sometimes double what their house is worth—yet they'll spend weeks agonizing over who gets the family china while ignoring the paperwork that controls where a $600,000 IRA actually goes.

Here's what makes retirement account estate planning so different from planning for everything else you own: tax treatment. Your kids inherit your beach house? They get what's called a stepped-up basis, which wipes out all the capital gains that built up while you owned it. That $200,000 property you bought for $50,000? They can turn around and sell it tomorrow with zero capital gains tax.

IRAs work completely opposite. Every dollar that comes out of a traditional IRA gets taxed as regular income to whoever inherits it. No basis step-up. No special breaks.

Let's walk through what this looks like in real life. Say your son works as an engineer pulling in $140,000 a year. He's already paying 24% federal tax on his top dollars. Now he inherits your $400,000 traditional IRA. When he starts taking distributions, that money piles on top of his salary, shoving him straight into the 32% bracket—or higher depending on how much he withdraws. After federal and California state taxes hit him, he might hand over $150,000 to tax collectors. That's more than a third of what you spent decades building up.

There's another wrinkle most people miss entirely. Your will doesn't control what happens to retirement accounts. Not even a l...