5 Common Estate Planning Mistakes

Key Takeaways

  • Frequent estate planning mistakes include not funding your assets properly; having outdated documents, incorrect beneficiary designations, underfunded trusts and insufficient planning for a surviving spouse.
  • Many affluent investors and retirees forget about the implication of probate in their estate planning.
  • Estate planning is not a one-time exercise; you need to review your documents periodically to make sure they accurately reflect your wealth transfer goals and desires.

Many times a successful investor will come in to see us and we’ll ask them if they have estate planning documents in place? Typically they’ll say “Yes” and then we’ll ask them if they’ve funded their trusts. That’s when they’ll give us a funny look and ask what that means. Well, it typically means changing your assets out of joint tenancy to the name of your trust. Invariably, we find that a lot of this planning has not taken place.

5 common estate planning mistakes

  1. Assets are not properly titled
  2. Documents are outdated
  3. Beneficiary designations are wrong
  4. The trust is not funded
  5. There is no plan for a surviving spouse

Real world example

A widow came to us several years ago. Her husband had gone through a long cancer process, went to hospice and eventually passed away. One of the things the woman and her late husband had talked about was selling their house if one of them passed away. The first thing she wanted to do was look at selling her home which they had bought for $200,000 over 35 years ago and now were selling for $1 million. They had done very well for themselves.

That house had been titled in joint tenancy between the husband and wife. This is very common. When the husband passed away, jointly held assets were half-stepped up, according to the law. That meant that half of the widow’s $800,000 gain on the house sale ($1 million sales price minus $200,000 purchase price) got erased. That’s $400,000. If we add that $400,000 to the $200,000 original basis, we get $600,000. That’s the new basis. There is also an exclusion for one’s personal residence–$250,000 for an individual and $500,000 for a couple.

Since the widow was an individual, if you subtract that $250,000 from the $400,000, now you have $150,000 of gain for which she had to pay over $25,000 in taxes. If she had known this scenario would occur, she and her late husband could have changed the ownership of the house to her husband’s trust. That way, all of the gain she incurred would have been erased. That’s an example of planning ahead for your estate.

Don’t forget probate

There’s also probate to consider. In the state of Illinois, if you have over $100,000 of assets in your name, then those assets go through a formal probate process. It’s not confidential and most of us want our assets and related financial decisions to remain confidential. It’s in the public record. Additionally, as we talked about, it is important to properly fund these assets to effectively pass them to our loved ones.


You need to take a look at your estate plan periodically to make sure it supports what you actually want to take place. Go to your most trusted advisor, look at your estate plan and make sure it fits what you want to occur in the future. Get it updated if necessary to meet the latest tax law. If you’re not getting the kind of help you feel you need, we’re happy to provide assistance.

Until next time, enjoy. Gary
800-480-7913 |

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