5 Myths About High-Net-Worth Estate Planning

The larger and more complex your estate, the more opportunities there are to make mistakes. That's why careful estate planning with the help of a qualified professional is critical—not only to ensure that your assets go where you intend, but also to reduce the potential tax burden on your heirs. 

With that in mind, understanding what people most often get wrong can help you get it right. Here, we bust five of the most common estate-planning myths our wealth strategists see when working with high-net-worth clients.

Truth: A trust is an empty shell—you must transfer assets into it for it to be effective.

This is a mistake that estate professionals see too often: Investors go through the trouble and cost of creating a trust—but then fail to fund it. And if you fail to fund your trust correctly, you're potentially exposing your estate to creditors, taxes, and probate court—three things most estate owners work hard to avoid.

One reason this happens is that estate owners don't realize a trust is just a shell into which assets must be transferred—which is something an estate-planning attorney isn't authorized to do. Your attorney can provide detailed instructions about how to do this, but actually moving the assets into the trust is your responsibility—and it may take multiple steps. 

For example, if you plan for a piece of real estate to be held in a trust for your grandchildren, you must prepare a new deed that lists the trust as the owner and then file that document with the county in which the property is located. Likewise, if you intend to place any bank or investment accounts in the trust, they must be retitled with the exact name of the trust, and any insurance policies must be updated to name the trust as the owner and beneficiary.

Truth: Life is unpredictable, and you'll need to update your estate plan accordingly.

Estate planning is not a "one and done" task. Rather, your estate plan should evolve as your heirs, priorities, and needs change. 

For example, perhaps someone named in your will has died, or the birth of a new grandchild inspires you to set aside some of your assets for their future. Or maybe you recently divorced but have several assets still listing your ex-spouse as beneficiary. If you don't adjust your plans to account for such events, then it may cause additional headaches—and potential friction—for your loved ones down the road.

Even if you haven't experienced any major life changes, reviewing your plan regularly—at least every three years—can help ensure it continues to reflect your wishes and current situation.

Truth: Spouses must claim any unused portion of your exemption in order to use it.
    

While it's true your spouse can employ any of your unused federal gift and estate tax exemption—a.k.a., the "deceased spouse unused exemption"—they must claim it on an estate tax return (IRS Form 706) within five years of your passing. 

This will be especially important as we're nearing a large change in the lifetime gift and estate tax exemption. As of 2023, it's $12.92 million per individual and $25.84 million per married couple, but come 2026—when certain provisions of the 2017 Tax Cuts and Jobs Act expire—the exemption is set to be cut to about $7 million for individuals. Estates over those amounts may be subject to federal estate taxes, currently 40%, plus any applicable state estate taxes. (Twelve states plus the District of Columbia levy such taxes.)

Truth: Your estate plan should include stipulations for your incapacity.

There's no escaping the fact that estate planning is about what happens to your wealth and assets when you die. But estate planners are increasingly focused on helping people decide, while they are healthy and able, who they'd like to have the authority to make decisions on their behalf should they become incapacitated. 

As you formulate your own estate plan, decide who you'd like to make financial decisions on your behalf if you become unable to do so yourself (known as a durable power of attorney). If this person is your spouse, you may still want the legal designation in place so they can access your financial accounts without delay. Also decide who should make medical decisions for you as your healthcare proxy or power of attorney for healthcare. Again, even if it's your spouse, discuss with your planner whether it still makes sense to draft a legal document to that effect.

And if you have minor children, it's essential to name in your will a guardian to care for your children in the event of death. 

Truth: A will alone may not transfer assets to your desired recipients—or help your heirs avoid probate.

Your will is an important component of your estate plan, but it has limits. For one, it must be legally validated through probate, which can be an expensive and lengthy process for sizable estates; and two, it can be superseded by beneficiary designations. 

For example, if the beneficiary named on a retirement account or insurance policy differs from the heir named in a will, the beneficiary designation carries the day. If the joint title for a piece of real estate includes someone other than the person named in a will, or if someone is named on a transfer-at-death deed (which is available in some states), the person on the deed likely will get the property.  

Updating beneficiary and titling information is one of the most basic aspects of effective estate plan management, and it can be even more important if you have changed your will. It's not unheard of to have a situation in which someone has been written out of a will, but gets a life insurance payout, or inherits a retirement account, or even a house because beneficiary designations and titling documents were not updated.