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Estate Planning Mistakes

Updated: Jan 4, 2023

I was just on the phone with a long-term client. Turns out, she made some mistakes that impact her estate. After a good laugh, because she knew better, she suggested I should do something to get the word out on how easy it is to mess up when it comes to estate planning/actions.

So, lets start with the proper behavior when it comes to estate planning/actions. Hire a professional to create/amend your Grantor Revocable Trust, coupled with a Will that moves anything in your estate into that trust at your death. Your named Trustee then handles the PRIVATE distribution of your estate per your last wishes, without any government interference via Probate Court or public scrutiny.

What are some of the wrong ways to do estate planning/actions? How about one of the most common, going down to the bank and adding one or more of your children onto all your bank accounts. The goal is to make it possible for them to easily access your bank accounts after you die. Problem with this? You just made a “gift” of some portion of your bank accounts. If more than $16,000 per person, you MUST file a Gift Tax Return, form 709, with the IRS in the year you did this.

Another major mistake is putting one or more of your children on the title of your home or other real estate. The thinking is that at your death, it immediately passes to that person. Problem with this? Once again, you made a “gift” of some portion of your home/real estate. Given the fair market value of most real estate, you gifted well more than the $16,000 per person limit.

But Kelly, I’ve heard that if your estate is small enough (currently less than $12,500,000) and you don’t have to pay any gift tax, then what’s the big deal? A LOT. When you die, the IRS looks closely at your estate, and if they find you made such a gift and did not file an appropriate gift tax return, there is a penalty that is the computed gift tax due, before any exclusion, plus 0.5% of that amount for every month after the due date of the missing Gift Tax Return.

Here is an example for you to see how potentially devastating this could end up being. Let’s say you are a widow and put your son on the title to your house as Joint Rights Of Survivorship. The house is worth $500,000 at the time of the change in title. Legally, you have made a gift of $250,000 to your son. The original tax, before applying an exclusion, is $70,800. Let’s say you made this title change 5 years ago. So the accrued Penalty would be $24,699. So, if you died and your son wanted to take possession of your home, he would owe the IRS $95,499. If you had just filed a simple Gift Tax Return 5 years ago when you added your son to the title, there would be $0 owed at your death and you would have paid $0 Gift Tax at the time of filing the original Form 709. OUCH!

Have you heard? Prov 5:1 says, “My child, pay attention to my wisdom. Turn your ear to my understanding.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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