Estate Planning After a Windfall

Most people don't revisit their estate plan after a major financial event until something goes wrong: an IRA with a stale beneficiary goes to an ex-spouse; a brokerage account passes through probate because the title was never updated; assets split according to a will written before the windfall existed. The 90-day window after a windfall is the time to fix all of it while the options are still open.

Who actually faces federal estate tax?

The 2026 federal estate and gift tax exemption is $15 million per person—$30 million for a married couple using portability—made permanent and inflation-indexed by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025.¹ Federal estate tax applies at 40% only on amounts above that threshold.

Most windfall recipients are below $15 million and will not owe federal estate tax. But estate planning is still essential for three other reasons:

• Probate avoidance. Without a trust, assets in your name alone go through a court process that is slow, public, and expensive.
• State estate taxes. Twelve states plus D.C. impose their own estate tax, many with exemptions well below $15 million. A windfall can push you above a state threshold even when the federal tax doesn't apply.
• Incapacity planning. A financial windfall with no durable power of attorney in place creates a serious vulnerability if you're incapacitated before your plan is written.

For windfalls that push a taxable estate above $15 million, irrevocable trust strategies become relevant—covered below.

Four documents to update immediately

These control what happens to you and your assets. Most people haven't touched them since they were signed.

• Will or pour-over will. Does it reflect your current family structure? Are the named executors still the right people? If you're creating or have a revocable trust, the will should pour over into it correctly.
• Durable financial power of attorney. This person manages your finances if you're incapacitated. After a windfall, they may be managing millions. Make sure it's the right person with the right scope of authority.
• Healthcare power of attorney and living will. These don't change with the windfall amount, but they're commonly skipped. An incomplete directive creates conflict at the worst moment.
• HIPAA authorization. Without one, even a spouse can be blocked from medical information. Update it at the same attorney appointment.

Beneficiary designations: the most important update

Beneficiary designations on IRAs, 401(k)s, life insurance, and transfer-on-death accounts are not governed by your will. They transfer directly to whoever is named—regardless of what your estate documents say. A windfall rolled into an IRA follows the designation from years ago.

Review and update designations on:

• All IRA accounts (traditional, Roth, rollover)
• 401(k), 403(b), and other employer plans
• Life insurance policies
• Annuities
• Transfer-on-death (TOD) brokerage accounts
• Payable-on-death (POD) bank accounts

Name a primary and a contingent beneficiary on each account. If you're considering naming a trust as beneficiary on retirement accounts, coordinate with your attorney first—naming a trust can create inherited IRA complications under the 10-year rule (see Inheritance Planning for how those rules work).

Revocable living trust: probate avoidance and privacy

A revocable living trust holds your assets during your lifetime and distributes them to beneficiaries after death without going through probate. That means no court proceeding, no public record of what you owned, and no mandatory delay. For someone who just received a significant windfall, probate avoidance is often the primary estate planning goal.

What a revocable trust does not do: it doesn't reduce your taxable estate. Assets in a revocable trust are still counted as yours for estate tax purposes. For most recipients under the $15M federal threshold, that's fine—probate avoidance is the goal, not estate tax reduction.

The most common mistake: establishing the trust but failing to retitle assets into it. Investment accounts, real estate, and other assets must be transferred into the trust's name to pass outside probate. This funding step requires a separate effort after formation.

Irrevocable trusts: for taxable estates above $15M

If a windfall pushes your total estate above $15 million, irrevocable trust strategies can move assets out of your taxable estate while preserving some economic benefit or transferring appreciation to the next generation. Common structures used in windfall planning:

• Spousal Lifetime Access Trust (SLAT). One spouse transfers assets to an irrevocable trust for the other spouse's benefit. The grantor removes the assets from their estate while the family retains access through the beneficiary spouse. Requires careful drafting to avoid the reciprocal trust doctrine if both spouses create SLATs.
• Grantor Retained Annuity Trust (GRAT). The grantor transfers assets to an irrevocable trust and receives a fixed annuity for a set term. If the trust's assets grow above the IRS §7520 hurdle rate, the excess passes to beneficiaries estate-tax-free. Works best with high-growth assets or in low-interest-rate environments.
• Intentionally Defective Grantor Trust (IDGT). An irrevocable trust structured so the assets are outside the grantor's estate for estate tax purposes, but the grantor still pays income tax on trust earnings. Paying that tax is an additional tax-free wealth transfer that accelerates growth inside the trust.

These structures require early coordination between your financial advisor, estate planning attorney, and CPA—ideally before windfall proceeds are deployed into any account. The right structure depends on your estate size, asset type, family composition, and whether the windfall is a one-time event or recurring income.

Annual gifting: $19,000 per recipient in 2026

The 2026 annual gift tax exclusion is $19,000 per recipient.² A married couple splitting gifts can transfer $38,000 per person per year with no gift tax return required and no reduction to the $15 million lifetime exemption. Gifts above the annual exclusion reduce your lifetime exemption (not taxed until the exemption is exhausted).

In addition, §2503(e) of the Internal Revenue Code provides an unlimited exclusion for direct payments of tuition (to the educational institution) and medical expenses (to the provider).³ These payments bypass both the annual exclusion and the lifetime exemption entirely—but they must go directly to the institution, not to the recipient.

Family requests are one of the most emotionally complex parts of a windfall. See Handling Family Money Requests for a framework to set policy before the first ask arrives.

Portability: preserving a deceased spouse's unused exemption

When a spouse dies with unused federal estate tax exemption, the surviving spouse can "port" that amount—called the Deceased Spousal Unused Exclusion (DSUE)—to supplement their own $15M exemption. A couple can effectively shelter up to $30M from federal estate tax using portability.

To elect portability, an executor must file Form 706 within 9 months of the decedent's death (or 15 months with a Form 4768 extension), even when no estate tax is owed. If that deadline has passed, Rev. Proc. 2022-32 allows a late election up to five years after the decedent's death for estates below the federal filing threshold.⁴

For a surviving spouse who just received an inheritance and is now managing a larger estate than before, checking whether the portability election window is still open—and filing if it is—can preserve significant future estate tax capacity.

State estate taxes

Twelve states plus Washington D.C. impose their own estate tax, with exemptions that vary widely—some as low as $1–2 million. A windfall can push someone into state estate tax exposure even when the federal threshold ($15M) doesn't apply. If you live in a state with an estate tax, coordinate with an estate planning attorney to understand whether and how your state's rules affect your plan. Domicile matters: some planning options depend on where you live, not just where your assets are held.

First-90-day estate planning checklist

Estate planning is one component of the first-year windfall plan. For the tax reserve calculation that comes first, see Windfall Tax Planning. For the full action sequence, see What to Do After a Windfall. For the allocation framework, use the Sudden Wealth Allocation Calculator.

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Sources

1. One Big Beautiful Bill Act (OBBBA), signed July 4, 2025; IRS Rev. Proc. 2025-32 — 2026 federal estate and gift tax exemption $15M per person, permanent and indexed for inflation. See: Nelson Mullins 2026 Estate and Gift Tax Update
2. IRS Rev. Proc. 2025-32 — 2026 annual gift tax exclusion $19,000 per recipient. See: Kiplinger Gift Tax Exclusion 2026
3. 26 U.S.C. § 2503(e) — unlimited exclusion from gift tax for direct tuition and medical payments. Cornell LII § 2503
4. Rev. Proc. 2022-32 — simplified method for late portability election, up to five years after decedent's death for estates below the filing threshold. IRS Form 706 Instructions (Sept. 2025): irs.gov/instructions/i706
5. 26 U.S.C. § 2010(c) — portability of deceased spousal unused exclusion (DSUE). Cornell LII § 2010

Values verified as of June 2026. Estate planning rules vary by state. Work with a licensed estate planning attorney and fee-only financial advisor before making irrevocable decisions.

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