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Reaching your senior years brings with it many financial changes, including planning and updating your estate to ensure that your assets go to the right beneficiaries.
As part of the process, you will need to develop a strategy for estate taxes that minimizes your tax liability and maximizes the assets you transfer. However, not everyone gets it right. A few mistakes can have a huge negative impact on your finances.
According to Certified Public Accountants (CPAs), here are five potentially disastrous mistakes that some senior clients make with their estate taxes.
Failure to fund trusts
Trusts can be a powerful tool for senior clients — but only if you fund the trust, said Eliot Basin, CPA & Partner. Fiondella, Milone & Lasarcina LLP.
“Often clients set up a trust, but do not actually transfer the intended assets into the trust,” Basin said. “The effect of this is to increase the client’s wealth and ultimately make more assets subject to transfer taxes.”
choosing the wrong executor
This mistake was cited by CPA and lead analyst Mark Luscombe wolters kluwer tax and accounting
“Selecting an executor or trustee based on family relationships without taking into account issues of knowledge or impartiality can lead to potential disputes or litigation,” he said.
Improper Use of Irrevocable Living Trusts
According to Jean Bott, Irrevocable Living Trusts can be a huge benefit in estate planning when used correctly., CPAs, Tax Consultants and Partners tax hive. But if you don’t understand the tax implications, you could be in for a big financial hit.
“They can trigger unexpected tax consequences now, significantly reducing the options for increasing the basis for your heirs at death or taking away control of assets that are still valuable,” he said.
Not updating information of beneficiaries
Basin said seniors often overlook the need to update beneficiary designations when reviewing or updating their estate plans. This mistake may result in someone other than the intended beneficiary receiving the property.
As an example, he cited a taxpayer who never changes beneficiary designations after a divorce, which could lead to assets inadvertently transferring to the former spouse.
“In addition, a client who has designated his or her assets as the beneficiary of a life insurance policy may inadvertently subject these assets to estate tax,” Basin said. “Life insurance proceeds are usually passed tax free to the beneficiary, unless the policy was owned by the decedent or is the beneficiary’s estate. This can have very negative estate tax consequences.”
Not Using the Annual Gift Tax Exclusion
As the bot said, senior citizens can give certain amounts of money to individuals and still be exempted from reporting the gift. In 2026, that amount is $19,000 per recipient.
“Each taxpayer can give that amount, so a married couple can give $38,000 to a single person without needing to file a gift tax return,” Bott said. “It adds up fast, especially because it’s an annual discount that allows you to spread the gift over several years.”