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Common Estate Planning Pitfalls

Estate planning is complicated.  In many cases, people simply sign a stack of documents at their attorney’s office and think the job is done. The result? A lot of mistakes, a lot of people falling into estate planning pitfalls.  Here are a few that you should try to avoid.


1) Naming the wrong executor or successor trustee.  It is common for the named person, years after the documents have been signed, to be deceased or no longer suited for the position. Meanwhile, children who were too young to serve may now be capable of taking on the executor role.

Solution: periodically check to see who has been named as the executor in the estate documents.


2) Not updating documents to reflect the maturity and financial conditions of the children. Parents tend to leave assets to their children in equal portions. In some cases, an unequal distribution might make sense. If one adult child has become financially successful while others are struggling, the parents may want to make changes. In addition, when children become adults, they should consider having estate documents in their own right.

Solution: check to see the provisions in your will or trust that relates to the children and update as necessary. When a child turns 18, have them execute an advanced health care directive; AARP gives us a resource in all states:


3) Inappropriate health care directives.  Under the Health Insurance Portability and Accountability Act (“HIPAA”), everyone’s medical and health information is confidential, meaning it cannot be shared with anyone without your written authorization. Without a health care directive, legal roadblocks could impede decision-making by others when you are incapacitated or approaching the end of your life.

Solution: check and update your family’s advanced health care directives. In addition, execute a HIPPA release so that family members, even those who are not health care agents, can obtain medical information about you.


4) Inappropriate estate tax provisions. Your will or trust may mandate trusts that were perfect in 1999 or 2009, but certainly no longer. Many estate documents include planning for asset values and tax laws prior to 2010, such as forcing the creation of a trust severely restricts a surviving spouse.

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


5) Estate documents drafted in a state where you no longer reside. Every state has its own estate tax laws; some are common law states while others are community property states. There are significant differences between them when it comes to transferring assets. Moreover, 17 states also impose some form of inheritance tax, some even when there is no federal tax.

Solution: make sure your estate plan reflects your current residency and keep an eye toward reducing state inheritance taxes.


6) Not utilizing “portability.” Portability came into estate law effective January 1, 2011. The federal estate rules now say that a surviving spouse can take advantage of any unused portion of the deceased spouse’s exclusion amount ($11.4 million in 2019). But that’s only true if the executor files an estate tax return. If a deceased’s estate pays no estate tax, often nobody realizes that the estate tax return (showing zero taxes) must be filed in order to claim Portability. This can be costly in larger estates when the second spouse dies with more than the current estate tax exclusion. If Congress lowers the $11.4 million exclusion when the political winds change direction, while the change would apply to the living, we think the deceased election will stand to benefit the heirs.

Solution:  Evaluate the benefits of filing an estate tax return (Form 706) to claim Portability. That allows the deceased spouse’s $11.4 million to be added to the surviving spouse’s exclusion for a $22.8 million combined exclusion.


7) Failing to plan for capital gains taxes. Most estates will never pay a federal estate tax (see $11.4 million exclusion above) which changes our focus to income tax benefits. One important consideration is the step-up in basis for appreciated property. When a person inherits assets, the capital gains tax on the appreciation during the deceased’s time of ownership will vanish. This is the closest thing to a free lunch, in the tax world, that you can get.

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

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