7 Estate Planning Mistakes That Cost HNW Families the Most in Taxes

 

For most families, the 2026 federal estate tax exemption of $15 million per individual (or $30 million for a married couple) means federal estate tax is a non-issue. For high-net-worth (HNW) and ultra-high-net-worth families, it's a different story entirely, and the mistakes that erode wealth at this level rarely come from the tax code itself. They come from paperwork that was never updated, elections that were never made, and plans that were built but never actually funded.

The good news: nearly every mistake on this list is preventable. The bad news: most families don't discover the mistake until it's too late to fix, usually after a death, when the only remaining option is to write a check to the IRS.

Here are the seven estate planning mistakes that cost HNW families the most, and what to do instead.

Did You Know?

The federal estate and gift tax exemption jumped to $15 million per individual ($30 million per married couple) for 2026, made permanent under the One Big Beautiful Bill Act, but anything above that threshold is still taxed at a federal rate of up to 40%, according to the IRS's 2026 inflation adjustments. A higher exemption doesn't eliminate the need for planning, it raises the stakes of getting the details wrong, since a single missed election or unfunded trust can now expose tens of millions of dollars to that 40% rate.

Mistake 1: Failing to Elect Portability of the Deceased Spouse's Unused Exclusion

When the first spouse dies, any portion of their $15 million exemption that wasn't used doesn't automatically transfer to the surviving spouse. It has to be affirmatively claimed, by filing IRS Form 706 and electing "portability", even if the estate is well below the filing threshold and owes no tax on its own.

Skip that filing, and the unused exemption disappears permanently. If a spouse dies with a $3 million estate and no portability election is made, the surviving spouse loses access to roughly $12 million of exemption that could have shielded future growth, a business sale, or inherited assets from a 40% tax. Portability elections generally must be made within nine months of death (with a possible six-month extension), and even after that window closes, the IRS has in limited cases granted late-filing relief, but families shouldn't count on it.

Mistake 2: Gifting Appreciated Assets Instead of Holding for the Step-Up in Basis

With today's much higher exemption, most families will never come close to owing federal estate tax. That changes the math on lifetime gifting. Assets held until death receive a step-up in basis to fair market value, wiping out decades of embedded capital gains. Assets given away during life carry the original, lower basis to the recipient, meaning a "generous" gift of low-basis stock can quietly hand a large capital gains bill to a child or grandchild.

We've written in detail about how this plays out with gifting appreciated assets to children and the tax traps that come with it, as well as smarter ways to gift money to kids without triggering an unnecessary tax bill. The short version: with a $15 million exemption in play, holding highly appreciated assets for the step-up is often the better move — gifting cash or already-diversified assets usually makes more sense than handing over a low-basis position.

Mistake 3: Leaving Beneficiary Designations and Titling Outdated

Retirement accounts, life insurance policies, and jointly titled property generally pass by beneficiary designation or by operation of law, not by will. A will that was carefully updated after a divorce, remarriage, or the birth of a grandchild means nothing if the 401(k) or life insurance policy still names an ex-spouse or a deceased parent as beneficiary. This is one of the most common, and most avoidable, mistakes across every wealth tier, but the dollar amounts at stake for HNW families make it especially costly.

Mistake 4: Ignoring State Estate and Inheritance Taxes

Federal exemption levels get most of the headlines, but a number of states impose their own estate or inheritance tax with exemption thresholds far lower than the federal $15 million, in some states, as low as $1–$2 million. A family that plans exclusively around the federal exemption can still face a substantial state-level tax bill, particularly if they own real estate or business interests across multiple states. Multi-state and multi-residency families should map their state-level exposure separately from their federal plan.

Mistake 5: Creating Trusts — and Never Funding Them

An irrevocable trust, a SLAT, or a dynasty trust only removes assets from a taxable estate if assets actually go into it. It's remarkably common for families to pay significant legal fees to draft sophisticated trust documents, sign them, and then never retitle the brokerage account, the real estate, or the business interest into the trust's name. When that happens, the "planning" exists only on paper, and the assets remain fully includible in the taxable estate. Funding a trust isn't a one-time task, either, new assets acquired after the trust is created also need to be coordinated with the plan.

Mistake 6: No Liquidity Plan for Illiquid, High-Value Assets

Even with a generous exemption, a large family business, a concentrated stock position, real estate portfolio, or art collection can push an estate's taxable value well above the threshold. The problem isn't just the tax rate, it's liquidity. Heirs may be forced to sell a family business at a discount, liquidate real estate in an unfavorable market, or sell inherited stock at the worst possible time simply to raise cash for a tax bill due within nine months of death.

Life insurance held in an irrevocable life insurance trust (ILIT) is one of the most common tools used to solve this problem, providing tax-free liquidity exactly when the estate needs it, without adding the policy proceeds back into the taxable estate. This is a core piece of the life finance planning we do with HNW and multi-generational families.

Mistake 7: Treating Estate Planning and Business Succession as Separate Projects

For founders, business owners, and key executives, the estate plan and the succession plan are really the same plan viewed from two angles. An estate plan that assumes a smooth, orderly transfer of a business interest, but was never coordinated with a buy-sell agreement, key-person insurance, or a documented leadership transition, can leave heirs holding an illiquid, undervalued, or disputed asset. This is exactly the gap our key executive and succession planning services are designed to close, working alongside the estate plan rather than after it.

Getting It Right

Every mistake above shares a common thread: they aren't failures of ambition, they're failures of maintenance and coordination. A $15 million exemption is generous, but it rewards precision, a filed Form 706, a funded trust, a retitled account, a state-tax map, a liquidity plan, and it punishes the families who assume a high exemption means the details no longer matter.

Our estate planning practice works specifically with ultra-high-net-worth families to coordinate the tax, insurance, business succession, and trust-funding pieces that most often fall through the cracks.

Frequently Asked Questions

What is the federal estate tax exemption for 2026? For 2026, the federal estate and gift tax exemption is $15 million per individual, or $30 million for a married couple using portability. Estates above that threshold are generally taxed at a top federal rate of 40% on the excess.

Do I still need estate planning if I'm under the $15 million exemption? Yes. State estate and inheritance taxes, unfunded trusts, outdated beneficiary designations, business succession gaps, and lifetime gifting decisions (like losing the step-up in basis) can all create costly problems regardless of whether you owe federal estate tax.

What happens if we forget to file for portability? The unused portion of the deceased spouse's exemption is generally lost permanently unless the IRS grants late-filing relief, which is not guaranteed. It must be affirmatively elected on a timely filed Form 706, even if no tax is owed.

Is it better to gift appreciated stock to my kids now, or let them inherit it later? It depends on your total estate size, but for most families now under the $15 million exemption, holding highly appreciated assets until death to receive the step-up in basis is more tax-efficient than gifting them during life, which passes along your original cost basis.

How do state estate taxes differ from the federal estate tax? Several states impose their own estate or inheritance tax with exemption amounts well below the federal $15 million threshold. A family can owe no federal estate tax and still owe a meaningful state-level tax, depending on where they live or own property.

What's the difference between an estate plan and a business succession plan? An estate plan addresses how your assets transfer after death; a succession plan addresses who runs and eventually owns your business. For business owners, these need to be built together, an estate plan alone can't solve a leadership or liquidity gap in a family business.

Why do irrevocable trusts fail to reduce estate taxes? Most often because they were never funded. Signing trust documents accomplishes nothing on its own, assets must actually be retitled into the trust for it to remove them from the taxable estate.

How often should a HNW family review their estate plan? At minimum every 2–3 years, and immediately after any major life event, marriage, divorce, birth, death, a business sale, a significant change in net worth, or a change in tax law such as the 2026 exemption increase.