Inheritance Simplified: How to Pass on Assets

To pass on assets to heirs, you have several legal methods available — including a will, a funded revocable trust, and beneficiary designations on financial accounts. Each approach carries different implications for probate, taxes, and privacy. This guide explains how each option works so you can make informed decisions about your estate plan.

The concept of an inheritance is well known—but “inheritance,” as defined by people and by the law, can often be two very different things.

Specializing in trust services, I’ve crafted estate-planning solutions for countless clients. A particular highlight for me is working with them on understanding the fundamental intricacies of inheritance. Let’s explore the process of passing on assets.

Why estate planning matters

Estate planning is the process of arranging for the transfer of your wealth in a way that minimizes legal complexities, taxes, and costs.

Without a proper estate plan, your assets may not be distributed according to your wishes. In addition to tax inefficiencies, you could inadvertently burden your loved ones with untold legal complexities after you pass.

However, as mentioned, there are some key differences between what most people consider estate planning, and how the legal system actually handles the transfer of assets after death.

Why “inheritance” might not mean what you think it does

Colloquially, we use the word “inheritance” to refer to any money received from a relative who passed away. You may “inherit” money by being designated a beneficiary in their will, trust, 401k, brokerage account, and other types of assets.

However, from a strict legal perspective, “inheritance” — and the corresponding word “heir” — refers to the wealth transfer that occurs when a person dies without any estate plan in place at all.

Each state has these default inheritance laws, called “intestate” statutes, that define the default recipients (“heirs”) of a person’s wealth. While it’s generally true that a person’s heirs are their spouse and living descendants, states vary in how they treat spouses when there are minor descendants, or descendants from a prior relationship.

Additionally, states divide estates among descendants using different methods. Some, like Maryland, divide equally at the children’s level (called “per stirpes”), while others, like Virginia, divide at the closest living generation (called “modified per stirpes”). This impacts how grandchildren inherit when their parents are deceased.

Even if you have a will in place, it’s important to understand the intricacies of your state’s intestate laws. They can drastically affect the distribution of assets if your estate plan is incomplete or contested.

What is the probate process?

“Probate” refers to the legal process of validating and administering a deceased person’s estate. Traditionally, probate involves proving that a will is valid and appointing an executor. Today, “probate” more broadly refers to the court-supervised administration of the entire estate.

For those without a will, probate involves following intestate laws to appoint an administrator and distribute assets. But whether there is a will or not, probate can be confusing, time-consuming, and expensive.

To avoid the complexities of probate, many choose to use a revocable trust to pass on wealth instead of a will. However, it’s important to understand that simply creating a trust does not eliminate the probate process. You must also “fund” your trust by transferring all appropriate assets into it while you’re alive. If you die before funding your trust, those assets will need to go through probate.

Understanding taxes related to wealth transfer

In the United States, there are several different types of taxes imposed on the transfer of wealth. The federal government imposes the following:

• A gift tax on transfers made while alive
• An estate tax (sometimes called a “death tax”) on transfers made at death
• A generation-skipping transfer tax on transfers made to a person who would be a generation younger than your children’s generation

These federally imposed transfer taxes are applied to a person’s entire net worth, including everything from real estate to life insurance death benefits. These come with an exemption of $13.61 million for transfers to non-spouses (as of 2024) — spouses are afforded an unlimited marital deduction against transfer taxes.

While most states do not separately impose an estate tax, a handful of states do. The state estate tax rates and exemptions vary widely, so check with your estate planner if you have any questions.

Working with an experienced estate advisor

On that note, I cannot emphasize enough the importance of working with an experienced estate planner. They can help navigate the complexities of probate, ensure that your estate plan is properly structured, and provide guidance on how to pass on your legacy effectively.

Beyond the monetary benefits, partnering with a professional can help make sure your plan stays up to date, helping your assets go where you want them to—no matter the changing details of your financial life. Ready to take the next step? Request your complimentary Wealth Blueprint review to start building your personalized estate plan today.

Frequently Asked Questions

1. What is the difference between a will and a trust for passing on assets?

A will goes through probate; a trust (when properly funded) does not. A trust also offers privacy, as wills become public record after death, allows for faster asset transfer, and can provide ongoing management for minor beneficiaries. Both documents require an attorney to be properly drafted and executed.

2. What assets automatically pass outside of a will or trust?

Accounts with named beneficiaries, including IRAs, 401(k)s, life insurance policies, and bank accounts with Payable-on-Death (POD) or Transfer-on-Death (TOD) designations, pass directly to beneficiaries without going through probate. Jointly owned property held with right of survivorship also transfers automatically outside the estate.

3. How do I avoid probate when passing on assets?

Common probate-avoidance strategies include funding a revocable living trust, naming beneficiaries on all financial accounts, setting up POD or TOD designations, and holding property in joint tenancy with right of survivorship. Note that having only a will does not avoid probate. Your estate will still go through the court process.

4. What is the federal estate tax exemption in 2025?

For 2025, the federal estate tax exemption is $13.99 million per individual, up from $13.61 million in 2024, per IRS guidance. Transfers to a surviving spouse receive an unlimited marital deduction. This exemption is currently scheduled to decrease in 2026 when provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire.

5. Which states have an inheritance tax?

Six states currently impose an inheritance tax: Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Tax rates and exemptions vary by state and by the beneficiary’s relationship to the deceased. Surviving spouses are typically exempt. If you live in one of these states, consult a locally licensed estate planner for guidance.

6. What happens if someone dies without a will or estate plan?

If a person dies intestate, without a valid will, state intestate succession laws determine how assets are distributed. A court appoints an administrator, and assets pass to heirs (typically a spouse and children) according to the state’s formula. This process can be slow, costly, and may not reflect the deceased’s actual wishes.

7. What is the annual gift tax exclusion, and how can it help with wealth transfer?

In 2025, the annual gift tax exclusion is $19,000 per recipient per year. This allows individuals to transfer assets during their lifetime without drawing on their federal estate and gift tax exemption. Married couples can combine their exclusions to give $38,000 per recipient annually, a useful strategy for gradual, tax-efficient wealth transfer.

8. How long does probate take?

Probate timelines vary by state and estate complexity. Straightforward estates with a clear will may be resolved in 6–9 months. Contested estates or those involving assets across multiple states can take two years or longer. By contrast, assets held in a funded trust or passing via beneficiary designation can be transferred in a matter of days or weeks.

This information is not intended to provide individualized tax or legal advice. Discuss your specific situation with a qualified tax or legal professional.

This article was originally published here by Kiplinger.

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