Commitment to readers
Aging, as we know, brings with it a lot of financial changes, particularly around estate planning and ensuring that one’s assets are passed on to the right beneficiaries. It’s crucial to establish an inheritance tax strategy that minimizes tax liabilities and optimizes what you stand to inherit. Yet, many people don’t quite get this right—there are several common pitfalls that can heavily impact your finances.
Certified public accountants (CPAs) often point out five critical mistakes that can trip up seniors when handling estate taxes.
Failure to fund a trust
Trusts are invaluable for seniors, but only when properly funded, explains Elliott Bassin, a certified public accountant. Many clients set up trusts but neglect to transfer their intended assets into them. This oversight can inflate estates, resulting in greater tax exposure.
Choosing the wrong executor
Mark Luscombe, another CPA, emphasizes the importance of selecting an executor or trustee wisely. Relying solely on family ties can lead to issues, as it may ignore someone’s knowledge or fairness, potentially inviting disputes.
Improper use of irrevocable living trusts
Gene Bott, also a CPA, points out that irrevocable living trusts can be beneficial—if used correctly. However, mismanagement can lead to severe tax implications, limiting an heir’s options and depriving them of control over valuable assets.
Beneficiary information not updated
A frequent oversight is neglecting to update beneficiary designations. This can be quite significant, as it may mean that an unintended individual receives an asset. Consider how many times beneficiaries go unchanged after a divorce, which could accidentally transfer assets to an ex-spouse. Additionally, naming your estate as a beneficiary on life insurance can lead to unwanted inheritance taxes.
Not utilizing the annual gift tax deduction
It’s also worth noting that seniors can usually avoid reporting gifts up to a certain amount—$19,000 per recipient in 2026—without having to file a gift tax return. For a couple, that’s effectively $38,000. Tapping into this annual exemption can be a smart move for easing future financial burdens.
