Common Estate Planning Pitfalls

Estate planning is complicated.  In many cases, people sign a stack of documents at their attorney’s office and assume the job is done. The result? Costly mistakes and common pitfalls that can undermine your estate planning.  Here are a few that you should try to avoid.

Naming the wrong executor or successor trustee. 

It is common for the person originally named, years after the documents were signed, to be deceased or no longer suited for the position. Meanwhile, children who were once too young may now be capable of taking on the executor role.

Solution: Periodically review your estate documents to ensure the named executor is still the best choice.

Not updating documents to reflect your children’s maturity and financial situations. 

Parents often divide assets equally among their children, but over time, an unequal distribution may make more sense. For example, one adult child may become financially secure, while another struggles. Additionally, once children reach adulthood, they should have estate documents of their own.

Solution: Review the provisions in your will or trust relating to your children and update as circumstances change. When a child turns 18, encourage them to complete an advanced health care directive. AARP gathered the free form for every state: AARP- Advance Directives.

Inappropriate health care directives. 

Under the Health Insurance Portability and Accountability Act (“HIPAA”)¹, everyone’s medical and health information is confidential, meaning it cannot be shared without your written authorization. Without a valid health care directive, your loved ones may face legal roadblocks impeding decision-making on your behalf during a medical crisis or approaching the end of your life.

Solution: Review and update your family’s advanced health care directives regularly. Also, execute a HIPPA release form to allow family members, even those who are not named health care agents, to access your medical information if needed.

Outdated estate tax provisions. 

Your will or trust may include tax planning strategies that were appropriate in 1995 or 2005 but are now outdated. Many estate documents include planning for asset values and tax laws prior to 2010, such as forcing the creation of a trust which would severely restrict a surviving spouse.

Solution: Review the formulas in your estate documents with your attorney and/or tax professional. Review old trusts that provide for credit shelter, bypass, family or exemption trusts funded at the first spouse’s death. Consider changing these in whole or in part to a Marital Trust.²

Estate documents drafted in a state where you no longer reside. 

Every state has its own estate tax laws, and they can differ significantly. Some are common law states while others are community property states, affecting how assets are owned and transferred. Additionally, several states impose some form of inheritance tax, even when no federal tax applies.

Solution: Ensure your estate plan reflects the laws of your current state of residence. Work with a professional to consider how relocating may affect your estate and explore strategies to reduce potential state-level inheritance taxes.

Not utilizing “portability.” 

Portability became part of estate law on January 1, 2011.³ It allows a surviving spouse to use any unused portion of the deceased spouse’s federal estate tax exclusion amount, which is $13.99 million in 2025.⁴ However, this benefit is only available if the executor files a timely estate tax return (Form 706)⁵, even if no tax is owed.

This step is often overlooked when no estate taxes are owed, but failing to file can be costly. The estate tax return (showing zero taxes) must be filed in order to claim portability. If the surviving spouse later dies with the estate exceeding the exclusion amount, heirs could face unnecessary estate taxes. If Congress lowers the $13.99 million exclusion, filing for portability now can preserve the deceased spouse’s full exemption, protecting the heirs against future changes.

Solution: Evaluate the benefits of filing an estate tax return (Form 706) to claim portability. This allows the deceased spouse’s $13.99 million to be added to the surviving spouse’s exclusion for a $27.98 million combined exclusion in 2025.⁶

Failing to plan for capital gains taxes. 

Most estates will never pay a federal estate tax due to the $13.99 million exclusion (see above). That shifts the focus to income tax planning, particularly the capital gains tax. One important consideration is the step-up in basis for appreciated assets. When a person inherits assets, the cost basis is adjusted to its fair market value at the date of death, effectively eliminating capital gains tax on the appreciation during the deceased’s time of ownership.⁷ In the tax world, this is the closest thing to a free lunch you can get.

Solution: Do not sell or gift highly appreciated assets like legacy stock positions or shares in the family businesses during the last years of life. Instead, pass them on to heirs free of the capital gains tax.

Estate planning isn’t a one-and-done task, it requires ongoing attention and periodic review to avoid costly and often irreversible mistakes. By staying proactive and keeping your documents aligned with current laws and family dynamics, you can ensure your intentions are honored and your loved ones are protected. Thoughtful planning today can spare your family confusion, conflict, and financial burden tomorrow.

Sources:

1. Health Insurance Portability and Accountability Act of 1996 (HIPAA) | Public Health Law | CDC
2. What Is A Marital Trust? How Does It Work? – Forbes Advisor
3. Portability - Why You May Want to File a 706 - Kemp Klein
4. What is Portability in Estate Planning? A Comprehensive Guide to the Latest Updates
5. Instructions for Form 706 (10/2024) | Internal Revenue Service
6. Estate tax | Internal Revenue Service
7. Estate Planning: How Does the Basis Step-Up Rule Work? | Kiplinger

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