7 Estate Planning Mistakes That Could Cost Your Family Thousands

As a Glendale estate planning and trust litigation attorney, I've seen families lose tens of thousands of dollars—sometimes hundreds of thousands—because of preventable estate planning mistakes. What's most heartbreaking is that these families thought they had everything properly handled. They had wills, trusts, or "plans" they created online, but critical errors turned their good intentions into expensive nightmares for their loved ones.

The worst part? Most of these mistakes are easily avoided with proper guidance and attention to detail. In this article, I'll walk you through the seven most costly estate planning mistakes I encounter, explain why they're so damaging, and show you exactly how to avoid them. Some of these examples come directly from cases I've handled—real families who learned these lessons the hard way so you don't have to.

Mistake #1: No Estate Plan at All

The Cost: $30,000-$100,000+ in probate fees, plus 12-18 months of delays

This is the most common and often most expensive mistake. Many Californians—even those with substantial assets—have no estate plan whatsoever. They assume their assets will "automatically" go to family members, or they keep putting it off, thinking they have plenty of time.

What Actually Happens

When someone dies without an estate plan in California, they die "intestate," and state law determines who inherits:

California Intestate Succession:

• Married with children: Spouse gets community property plus 1/3 to 1/2 of separate property; children get the rest
• Unmarried with children: Children inherit everything equally
• No spouse or children: Parents inherit, then siblings, then more distant relatives
• No living relatives: Property goes to the State of California

But here's the bigger problem: Everything goes through probate court.

Real-World Example: The Pasadena House

Maria, a 68-year-old Pasadena widow, kept saying she'd "get around to" creating a trust. She owned a home worth $925,000, had $180,000 in bank accounts, and a brokerage account with $250,000. Total estate: $1,355,000.

When she died unexpectedly from a stroke, her two adult children faced:

Probate Costs:

• Statutory attorney fees: $28,000
• Statutory executor fees: $28,000
• Court filing fees: $435
• Publication costs: $500
• Appraisal fees: $600
• Accounting fees: $2,500
• Bond premium: $1,800
• Total: $61,835

Timeline: 17 months from death to final distribution

What She Could Have Done: A comprehensive estate plan with living trust would have cost approximately $3,500. Her children could have received their inheritance in 6-8 weeks with total administration costs of about $5,000.

Money Lost: $56,835 Time Lost: 15 months

Additional Hidden Costs

Beyond direct probate expenses:

Property Tax Reassessment: Under Proposition 19 (effective February 2021), inherited property often gets reassessed to current market value. Maria's children wanted to keep the house, but it was reassessed from a $350,000 tax basis to $925,000, increasing annual property taxes by $5,750.

Lost Investment Opportunities: Assets frozen in probate can't be invested or managed. The $250,000 brokerage account sat idle during a bull market. Missed gains: approximately $35,000.

Family Stress: Siblings had to make multiple court appearances, missed work, and experienced significant stress during their grieving period. No price tag adequately captures this cost.

Who This Affects Most

High-Risk Groups:

• Homeowners in California (median home price in LA County exceeds $750,000)
• Anyone with assets over $184,500
• Business owners
• People with minor children (who inherits isn't the only issue—who raises them?)
• Anyone who values privacy (probate is public record)

How to Fix It

Action Steps:

1. Schedule a consultation with an estate planning attorney
2. Complete a comprehensive estate plan including:
   • Revocable living trust (if appropriate)
   • Pour-over will
   • Durable power of attorney for finances
   • Advance health care directive
   • HIPAA authorization
3. Actually fund the trust (transfer assets into it)
4. Review and update every 3-5 years

Cost: $2,500-$5,000 for complete estate plan Savings: $40,000-$100,000+ in probate costs

Don't Wait: Estate planning isn't just for the elderly. Unexpected death or incapacity can happen at any age. The average age of clients I see whose families are in crisis because there was no plan? 62 years old. They thought they had time.

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Mistake #2: Using DIY or Online Estate Planning Templates

The Cost: $40,000-$150,000 in litigation costs to fix problems, plus family conflict

The internet is filled with advertisements for $99 wills and $299 trusts. "As good as what lawyers charge thousands for!" they promise. It sounds appealing—why pay attorney fees when you can download forms?

As someone who has litigated dozens of cases involving failed DIY estate plans, I can tell you exactly why: because those forms don't account for your unique situation, California-specific laws, or the complexity of your family dynamics.

What Goes Wrong

Common DIY Mistakes:

1. Ambiguous language that causes litigation over meaning
2. Missing provisions for common scenarios
3. Improper execution (signatures, witnesses, notarization)
4. Failure to coordinate with beneficiary designations
5. Generic templates that don't comply with California law
6. No funding instructions (trusts are created but never funded)
7. Tax planning completely ignored

Real-World Example: The $99 Trust Disaster

Robert used an online service to create a living trust for his $1.2 million estate (Glendale home worth $850,000, retirement accounts, investments). The form cost him $299 and took 20 minutes to complete. He died thinking his three adult children would easily inherit his estate.

What Went Wrong:

Problem #1: Contradictory Provisions The trust said the home should be sold and proceeds divided equally. Another section said "real property shall be distributed in kind to my children." Which provision controlled? The trust didn't say.

Problem #2: Trust Never Properly Funded Robert never transferred the house into the trust. The online service didn't explain how to do this or provide deeds. Result: The house had to go through probate anyway.

Problem #3: Retirement Account Mistake The trust instructions said to name the trust as beneficiary of his IRA ($400,000). Robert did this. Big mistake. This triggered immediate income tax consequences that cost his children approximately $140,000 in unnecessary taxes.

The Litigation: The three children disagreed about whether to sell the house or have one buy out the others. They hired separate attorneys to interpret the ambiguous trust language.

Costs:

• Litigation attorney fees: $78,000 (split among the estate and children)
• Probate of the house: $35,000
• Lost tax benefits on IRA: $140,000
• Time: 2 years before resolution
• Total Unnecessary Costs: $253,000

Family Impact: The siblings no longer speak to each other. Family holidays and relationships destroyed over confusion that proper drafting would have prevented.

Why Attorney-Drafted Plans Are Worth It

What You Get:

• Customized to your specific situation
• Compliant with current California law
• Tax planning considerations
• Coordination with beneficiary designations
• Funding guidance and assistance
• Someone to call with questions
• Relationship with attorney who knows your plan
• Professional liability insurance if errors occur

What You Don't Get with DIY: All of the above. Plus, the online service explicitly disclaims any responsibility if the documents don't work.

The Hidden Assumption

DIY estate planning assumes your situation is simple and standard. But consider:

• Do you own real estate? (Deed preparation required)
• Are you married? (Community property considerations)
• Have children from previous relationship? (Potential conflicts)
• Own a business? (Succession planning needed)
• Have significant retirement accounts? (Tax planning critical)
• Want to control when children inherit? (Trust provisions required)
• California resident? (State-specific laws apply)

If you answered yes to even one question, your situation isn't "simple."

How to Fix It

If You Already Have a DIY Plan: Have it reviewed by a qualified estate planning attorney. They can identify problems and either revise the existing documents or create proper ones. Cost: $1,000-$2,500 for review and revisions.

If You Haven't Created a Plan Yet: Start with a proper, attorney-drafted plan. The few thousand dollars you spend now will save your family tens or hundreds of thousands later.

Cost-Benefit Analysis:

• DIY trust: $299 + $253,000 in problems = $253,299 total cost
• Attorney-drafted trust: $3,500 + $0 in problems = $3,500 total cost
• Savings: $249,799

The "expensive" option is actually 72 times cheaper.

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Mistake #3: Creating a Trust But Never Funding It

The Cost: $30,000-$80,000+ (same as having no plan at all)

This might be the most frustrating mistake because families think they're protected. They paid for a trust, they have the documents, they did "everything right"—except the one thing that actually matters: putting assets into the trust.

The Critical Truth About Trusts

A trust is only useful if you actually transfer assets into it.

Think of a trust as a basket. You can have the most beautifully crafted basket in the world, but if you never put anything in it, it's useless. An empty trust avoids nothing.

What "Funding" Means

Funding a trust means changing the ownership/title of your assets from your individual name to the trust's name.

Examples:

• Real estate: Recording a new deed showing "John Smith, Trustee of the John Smith Revocable Living Trust dated January 15, 2025" as owner
• Bank accounts: Retitling account in trust name or changing beneficiary
• Investment accounts: Transferring securities into trust-owned account
• Business interests: Assigning LLC or partnership interests to trust

Real-World Example: The Burbank Trust Nobody Used

Thomas paid an attorney $4,000 for a comprehensive estate plan with living trust in 2015. The attorney explained funding, provided instructions, and even prepared the deed for his Burbank home.

Thomas signed the trust documents. He meant to sign the deed and take it to the county recorder, but he was busy. "I'll do it next week," he told himself.

He never did.

When he died in 2023, his family found the beautiful trust binder. "Thank goodness Dad did this," they thought. Then they discovered the problem: the trust was empty. The house was still in Thomas's individual name.

What Happened:

• House had to go through probate: $42,000 in fees
• Investment accounts not in trust: Additional probate costs
• Timeline: 16 months
• The trust was completely worthless

Family's Reaction: "We paid for a trust. Why didn't it work?!"

The Answer: Because Thomas never funded it. The unsigned deed was still in the trust binder.

Why This Happens

Common Reasons:

1. Don't Understand the Importance Attorneys explain it, but clients don't grasp that funding is the most critical step.

2. Procrastination "I'll do it later" turns into months or years.

3. Overwhelmed by Process Seems complicated (though it isn't with guidance).

4. Attorney Doesn't Follow Up Some attorneys prepare the plan but don't ensure funding happens.

5. Think "Someone Else Will Do It" Assume bank or financial advisor will handle it.

6. Forget About New Assets Fund the trust initially but buy new property years later and forget to put it in the trust.

Assets That MUST Be in the Trust

Critical Assets:

• Primary residence
• Vacation homes, rental properties
• Investment/brokerage accounts
• Bank accounts (checking, savings)
• Business interests (LLCs, partnerships)
• Stocks, bonds, mutual funds (non-retirement)

Assets That DON'T Go in the Trust:

• Retirement accounts (IRA, 401k) - use beneficiary designations instead
• Life insurance policies - name trust as beneficiary if desired
• Health Savings Accounts
• Vehicles (optional in California - can use trust or TOD)

The Funding Process

For Real Estate:

1. Attorney prepares new deed
2. You sign it with notary
3. Attorney records it with county recorder
4. Takes 2-3 weeks
5. Cost: Usually included in trust preparation fee

For Bank Accounts:

1. Take trust document (or certification of trust) to bank
2. Bank retitles account or creates new account in trust name
3. Takes 30-60 minutes
4. Cost: Free

For Investment Accounts:

1. Contact financial advisor or brokerage
2. Provide certification of trust
3. They prepare new account agreements
4. Transfer securities to trust account
5. Takes 1-2 weeks
6. Cost: Free

Total Time to Fund Completely: 2-4 weeks if you're diligent about it.

How to Fix It

If Your Trust Is Unfunded:

1. Locate all trust documents and funding instructions
2. Make a list of all assets that should be in trust
3. Schedule appointment with your estate planning attorney (or a new one if original isn't responsive)
4. Actually complete the transfers - don't just collect the documents
5. Confirm completion - check that all transfers recorded/processed

Ongoing Maintenance: Every time you acquire a major asset, immediately transfer it into your trust:

• Buy a new house → deed it to the trust
• Open new investment account → title it in trust name
• Inherit property → transfer it to your trust

Calendar Reminder: Set an annual reminder to review your trust funding and ensure all assets are properly titled.

Critical Reminder: An unfunded trust is worse than no trust because you paid for protection you don't actually have. Your family will discover this at the worst possible time—after you die, when it's too late to fix.

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Mistake #4: Outdated or Incorrect Beneficiary Designations

The Cost: $50,000-$500,000+ in assets going to wrong people, plus potential litigation

Beneficiary designations are incredibly powerful—and incredibly easy to forget about. What you name on beneficiary forms overrides your will and trust. Yet I regularly see cases where life insurance, retirement accounts, or bank accounts pass to the "wrong" people because beneficiary forms were never updated.

How Beneficiary Designations Work

Certain assets pass directly to named beneficiaries upon your death, outside of probate:

• Life insurance policies
• Retirement accounts (IRA, 401k, 403b, etc.)
• Bank accounts with POD (payable on death) designation
• Investment accounts with TOD (transfer on death) designation
• Some annuities

The Key Rule: The beneficiary designation controls who receives these assets, regardless of what your will or trust says.

Real-World Example: The Ex-Wife Gets $750,000

David divorced his first wife, Jennifer, in 2010. He remarried Susan in 2012 and updated his will to leave everything to Susan and his two children. He thought he was "all set."

When David died in 2024, his family discovered a problem: His $750,000 IRA still listed Jennifer (his ex-wife) as the primary beneficiary. He had never updated the form after the divorce.

Result: Jennifer received the entire $750,000 IRA. Susan and the children received nothing from it.

Susan's Options: She could sue Jennifer, arguing the divorce automatically revoked the designation. California Family Code Section 5040 provides some protection, but:

• Litigation is expensive ($30,000-$50,000)
• Outcome uncertain
• Takes 1-2 years
• Damages family relationships further

What David Should Have Done: Immediately after the divorce, he should have updated all beneficiary designations. This takes 15 minutes per account and costs nothing.

Money Lost: $750,000 to the ex-wife instead of his current family

Common Beneficiary Designation Mistakes

1. Never Named a Beneficiary Some people never complete beneficiary forms. Default is often "the estate," which forces the asset through probate and may trigger adverse tax consequences.

2. Named "My Estate" Never do this. It defeats the purpose of beneficiary designations, forces probate, and can trigger income tax problems (especially for retirement accounts).

3. Named Only Primary, No Contingent If your primary beneficiary predeceases you, the asset goes to your estate (probate).

4. Named Minor Children Directly If a minor inherits, the court may require a conservatorship, and the child gets everything at age 18 (ready or not).

5. Named Disabled Person on Government Benefits Direct inheritance can disqualify them from SSI, Medi-Cal, etc. Should name a special needs trust instead.

6. Forgot About Old Accounts That 401k from a job 20 years ago still has your college roommate listed because you never changed it.

7. Named Person Who Died If you don't update after a beneficiary dies, there may be no valid designation.

Coordination with Estate Plan

Your beneficiary designations must coordinate with your overall estate plan.

Example Conflict:

• Your trust says: "Divide estate equally among my three children"
• Your IRA (worth 60% of estate) says: "Primary beneficiary: my daughter Sarah"

Result: Sarah gets 60% of estate from IRA, plus 1/3 of remaining 40% from the trust = 73% of total estate. Other two children get only 13.5% each. Is this what you intended?

Tax Implications

Retirement Accounts: Who you name as beneficiary dramatically affects taxes:

• Spouse: Can roll over to own IRA tax-free
• Non-spouse individual: Can stretch distributions over their lifetime
• Estate or trust: Often must distribute (and pay tax on) the entire account within 5-10 years

Life Insurance: Naming your estate as beneficiary can make death benefits subject to estate tax and creditors.

Real-World Example: The Special Needs Disaster

Margaret's son, Alex, had autism and received SSI benefits. Margaret had a properly drafted special needs trust in her estate plan. She died, and the family discovered her $400,000 life insurance policy named Alex directly as beneficiary—not the special needs trust.

Result:

• Alex received $400,000 directly
• This disqualified him from SSI and Medi-Cal
• Benefits didn't resume until he spent down to under $2,000
• Lost approximately $200,000 in benefits over several years
• Had to hire attorneys to fix ($15,000 in fees)

What Should Have Happened: The life insurance beneficiary should have been "The Alex Johnson Special Needs Trust." Alex would have kept his benefits, and the money would have supplemented his care for his entire life.

How to Fix It

Action Steps:

1. Create a Master List List every account with beneficiary designations:

• All retirement accounts (IRA, 401k, 403b, 457, TSP, etc.)
• Life insurance policies
• Annuities
• Bank accounts (check if they have POD)
• Investment accounts (check if they have TOD)

2. Request Current Beneficiary Forms Contact each institution and ask: "Who are my current beneficiaries?"

Don't assume you remember—confirm in writing.

3. Review for Problems Check each account:

• Is the beneficiary correct?
• Is there a contingent beneficiary?
• Does this coordinate with my estate plan?
• Are there any minors named directly?
• Any disabled persons who should inherit via trust?
• Any deceased persons still listed?
• Any ex-spouses still listed?

4. Update as Needed Complete new beneficiary designation forms. Keep copies for your records.

5. Coordinate with Estate Planning Attorney Review beneficiary designations with your attorney to ensure they coordinate with your trust and overall plan.

6. Review Annually Put it on your calendar. Check beneficiary designations every year, especially after:

• Marriage or divorce
• Birth or adoption
• Death of a beneficiary
• Major financial changes

Cost to Update: Free (just paperwork) Cost of Not Updating: Potentially hundreds of thousands of dollars going to wrong people

Quick Reference - Beneficiary Best Practices:

✅ DO:

• Name specific individuals (use full legal names)
• Name contingent beneficiaries
• Name special needs trusts for disabled beneficiaries
• Name your revocable trust for complex distributions
• Review and update regularly

❌ DON'T:

• Name "my estate"
• Name minor children directly
• Name disabled persons on benefits directly
• Forget to update after life changes
• Assume your will controls these assets

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Mistake #5: No Planning for Incapacity

The Cost: $15,000-$30,000+ in conservatorship costs, plus loss of control and dignity

Most people focus estate planning on what happens when they die. But what about what happens if you become incapacitated and can't make decisions for yourself? This is actually more likely than you think—and without proper planning, your family faces expensive court proceedings to get authority to help you.

The Reality of Incapacity

Statistics:

• 1 in 3 people over 65 will develop dementia
• Stroke is the leading cause of adult disability
• 70% of people over 65 will need some form of long-term care
• Average length of disability before death: 2-3 years

Common Causes:

• Alzheimer's disease or dementia
• Stroke
• Traumatic brain injury
• Coma
• Severe mental illness
• Advanced Parkinson's disease

What Happens Without Incapacity Planning

If you become incapacitated without proper documents, your family cannot legally:

• Access your bank accounts
• Pay your bills
• Manage your investments
• Sell your property
• Make medical decisions for you
• Access your medical records

Their Only Option: Petition the court for conservatorship.

Real-World Example: The Conservatorship Nobody Wanted

Linda, 74, had a severe stroke that left her unable to communicate or manage her affairs. She had no power of attorney or advance health care directive.

Her daughter, Karen, needed to:

• Pay Linda's mortgage and bills
• Access funds for Linda's care
• Make medical decisions
• Possibly sell Linda's house to pay for nursing care

But Karen Had No Authority

The Solution: Conservatorship

What Karen Faced:

• Hire attorney: $7,500
• Court filing fees: $435
• Court investigator fee: $1,500
• Medical evaluation: $500
• Process: 4-5 months
• Multiple court appearances
• Annual accountings required
• Annual court fees
• Ongoing attorney fees for court filings

Total Initial Cost: $12,000-$15,000 Annual Ongoing Cost: $2,000-$4,000

Emotional Cost:

• Karen had to testify in court that her mother was incapacitated
• Linda's condition had to be made public (probate is public record)
• Court oversight of every major decision
• Loss of dignity and privacy for Linda

What Linda Should Have Done: Created durable power of attorney for finances and advance health care directive when she had capacity.

Cost of Proper Planning: $500-$1,000 (included in estate plan) Money Saved: $12,000+ upfront, $2,000-$4,000/year ongoing

Essential Incapacity Planning Documents

1. Durable Power of Attorney for Finances

Gives someone (your "agent" or "attorney-in-fact") authority to manage your finances if you become incapacitated.

Powers Typically Granted:

• Manage bank accounts
• Pay bills
• File tax returns
• Manage investments
• Buy/sell property
• Handle insurance
• Manage business interests
• Access safe deposit box

"Durable" Means: Remains valid even if you become incapacitated (critical—non-durable POAs end at incapacity).

When It Takes Effect:

• Immediate: Effective when signed (you can still act yourself)
• Springing: Only effective upon incapacity (requires proof of incapacity)

Most attorneys recommend immediate POAs because springing POAs can be difficult to use (proving incapacity may require multiple doctors' letters, creating delays in emergencies).

2. Advance Health Care Directive

Combines two documents:

• Health Care Power of Attorney: Names someone to make medical decisions if you can't
• Living Will: States your wishes about end-of-life care

Decisions Your Agent Can Make:

• Treatment options
• Surgical procedures
• Medication decisions
• Facility placement (hospital, nursing home)
• End-of-life care decisions

California POLST: For those with serious illness, consider a Physician Orders for Life-Sustaining Treatment (POLST) form—medical orders about CPR and other emergency treatments.

3. HIPAA Authorization

Allows named people to access your medical records and speak with your doctors. Without this, medical providers cannot share information with family members due to privacy laws.

4. Revocable Living Trust

While primarily for avoiding probate, a properly funded trust also provides incapacity planning:

• Successor trustee steps in automatically if you become incapacitated
• Can manage all trust assets without court involvement
• Seamless transition, no gaps in authority

Combined Approach: Most comprehensive plans include all four:

• Living trust (manages trust assets during incapacity)
• Durable POA (manages non-trust assets and handles matters like taxes)
• Advance health care directive (medical decisions)
• HIPAA authorization (medical information access)

Common Incapacity Planning Mistakes

Mistake #1: Old Power of Attorney A power of attorney from 15 years ago may not be honored by current banks and institutions. They want recent forms. Update every 5-7 years.

Mistake #2: Naming the Wrong Person Choose someone who:

• Is trustworthy and responsible
• Understands finances (for POA)
• Will honor your wishes (for health care)
• Is available and willing
• Can handle family dynamics

Don't just name your oldest child because they're oldest—name the most capable.

Mistake #3: No Alternates Named If your primary agent can't or won't serve, who's next? Always name successor agents.

Mistake #4: Multiple Agents Without Clear Terms Naming multiple people to act together can create problems if they disagree. Be specific: jointly (all must agree), severally (any one can act), or in sequence (one acts, then the next if unavailable).

Mistake #5: Not Telling Anyone Your agents must know they've been named and where to find the documents.

How to Fix It

If You Have No Incapacity Planning:

1. Schedule appointment with estate planning attorney
2. Discuss who should be your agents
3. Prepare all three documents (POA, health care directive, HIPAA)
4. Sign with proper witnesses/notarization
5. Give copies to:
   • Your named agents
   • Your doctors (health care directive)
   • Your attorney
   • Store originals in safe place

If You Have Old Documents:

Review them with an attorney. If more than 5-7 years old, consider updating.

If You Have a Trust But No POA:

You still need a power of attorney for:

• Assets not in the trust
• Income tax returns
• Government benefits
• Decisions requiring personal authority

Cost: $500-$1,500 for comprehensive incapacity planning documents

Savings: $12,000-$30,000+ in avoided conservatorship costs

Act Now: You can only create these documents while you have mental capacity. Once you're incapacitated, it's too late. This is one area where procrastination can be devastating.

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Mistake #6: Ignoring California Tax Implications

The Cost: $50,000-$300,000+ in unnecessary property taxes and income taxes

While federal estate tax currently only affects estates over $13.99 million (2025), California has its own tax considerations that can cost families dearly if not properly planned for.

Proposition 19: The Property Tax Bomb

Effective February 16, 2021, Proposition 19 dramatically changed California's parent-to-child property tax exclusion.

Before Prop 19: Parents could transfer a primary residence (and up to $1 million in assessed value of other property) to their children without triggering property tax reassessment. Children inherited the parents' low property tax basis.

After Prop 19: The parent-to-child exclusion is now severely limited:

New Rules:

1. Primary residence only (no more vacation homes or rentals)
2. $1 million limit on excluded assessed value
3. Child must use as their primary residence within one year and continue to use it as primary residence

Example of Impact:

The Glendale Home Transfer:

• Parent's home purchased in 1985: $150,000
• Current assessed value (tax basis): $400,000
• Current market value: $1.2 million
• Annual property taxes at current basis: $4,000

Scenario 1: Child moves into home as primary residence

• New assessed value: $400,000 (parent's basis) + $1,000,000 (exclusion) = covered
• No reassessment
• Property taxes remain: $4,000/year

Scenario 2: Child uses as rental property

• Full reassessment to $1.2 million
• New property taxes: $12,000/year
• Increase: $8,000/year
• Over 20 years: $160,000 additional taxes

Real-World Example: The Unexpected Tax Bill

Margaret's parents died in 2023, leaving her their Pasadena home worth $1.4 million (assessed value $500,000). Margaret already owned her own home and planned to rent her parents' house for income.

Under the old law, she would have inherited the $500,000 tax basis. Under Prop 19:

• Property reassessed to full $1.4 million market value
• Property taxes increased from $5,000/year to $14,000/year
• Additional annual cost: $9,000

Margaret couldn't afford the taxes and had to sell the family home her parents wanted to keep in the family.

What Her Parents Could Have Done: Several strategies could have helped:

1. Sell and gift proceeds during lifetime (though gift tax considerations)
2. Life estate planning (complex, needs attorney)
3. Different trust structure for rental properties
4. Discuss with children whether they'd actually use as primary residence

Result of Poor Planning: Lost family home and paid $9,000/year she couldn't afford

Income Tax on Inherited IRAs

The SECURE Act (federal law, 2019) changed how inherited retirement accounts work.

Old Rule: Non-spouse beneficiaries could "stretch" IRA distributions over their lifetime, minimizing taxes.

New Rule: Most non-spouse beneficiaries must withdraw the entire IRA within 10 years of death, accelerating income taxes.

Example:

• IRA value: $500,000
• Beneficiary: Adult child in 32% tax bracket
• Must withdraw $50,000/year for 10 years
• Federal tax: $160,000
• California tax: $37,000
• Total taxes: $197,000 (nearly 40% of IRA value)

Better Planning:

• Roth conversions during lifetime (pay tax at potentially lower rates)
• Name spouse as beneficiary (more favorable rules)
• Consider charitable remainder trusts
• Stretch distributions to minimize tax bracket impact

Medi-Cal Recovery

California seeks reimbursement from estates for Medi-Cal benefits paid after age 55 for:

• Nursing home care
• Hospital services
• Prescription drugs
• Home and community-based services

How Much They Can Take: Everything paid out, including:

• Monthly nursing home costs ($8,000-$12,000/month)
• Years of care = hundreds of thousands of dollars

What They Can Take It From:

• Assets in your probate estate
• Assets in your revocable living trust
• Some jointly-owned property

Example: Your mother received $300,000 in Medi-Cal benefits for nursing home care over 3 years. After she dies, California can claim $300,000 from her estate before any inheritance goes to you.

Planning Strategies:

• Irrevocable trusts (advanced planning, 5-year lookback)
• Home equity protections (limited)
• Annuities and other exempt assets
• Spousal protections

Important: Medi-Cal planning is complex and must be done carefully to avoid penalties. This requires specialized attorney guidance.

Capital Gains Tax on Inherited Property

When you inherit property in California, you generally get a "step-up in basis" to the fair market value at death.

Example:

• Parent bought home in 1980 for $100,000
• Home worth $1 million at parent's death
• You inherit with a $1 million basis (stepped up)
• If you immediately sell for $1 million, no capital gains tax

BUT: If the property doesn't get stepped-up basis (certain trust structures, if done wrong):

• You inherit parent's $100,000 basis
• Sell for $1 million
• Capital gain: $900,000
• Federal + California capital gains tax: approximately $250,000

Another Prop 19 Issue: If you must sell the home because you can't afford the reassessed property taxes, you'll pay capital gains on appreciation that occurred after death.

How to Fix It

Action Steps:

1. Review Current Estate Plan for Tax Issues Have an attorney analyze:

• Property tax implications of your estate plan
• IRA distribution strategies
• Capital gains tax considerations
• Medi-Cal recovery exposure

2. Consider Prop 19 Planning for Real Estate

• Discuss with children whether they'd use home as primary residence
• Consider selling and gifting proceeds if children won't use home
• Explore life estate arrangements
• Document intended use

3. Retirement Account Planning

• Consider Roth conversions
• Review beneficiary designations for tax efficiency
• Plan distribution strategies with financial advisor and attorney

4. Medi-Cal Planning (If Applicable)

• Consult elder law attorney early (before crisis)
• Explore asset protection strategies
• Understand lookback periods (5 years for certain transfers)

5. Document Everything Proper documentation supports tax positions and protects against IRS or California challenges.

Cost of Planning: $1,000-$5,000 for tax analysis and planning

Savings: $50,000-$300,000+ in avoided taxes

Prop 19 Key Takeaway: If you want your children to inherit your California home with your low property tax basis, they MUST use it as their primary residence. Discuss this with them NOW. If they won't or can't, you need a different strategy.

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Mistake #7: Never Updating Your Estate Plan

The Cost: $20,000-$100,000+ as outdated plans fail to work as intended

Creating an estate plan isn't a one-time event. Life changes, laws change, family circumstances change—and your estate plan must change with them. An outdated estate plan can be nearly as bad as no plan at all.

How Long Has It Been?

Last updated more than 5 years ago? It needs review.

Last updated more than 10 years ago? It almost certainly needs updates.

Created before 2020? California Prop 19 (2021) may have significantly affected real estate planning.

Created before 2019? The SECURE Act changed IRA inheritance planning.

Created before 2018? Federal tax law changes may have affected planning.

Life Changes That Require Updates

Family Changes:

• ☐ Marriage or divorce
• ☐ Birth or adoption of child
• ☐ Death of beneficiary or trustee
• ☐ Child reaches adulthood
• ☐ Estrangement from family member
• ☐ Child with substance abuse or financial problems
• ☐ Family member becomes disabled
• ☐ Grandchildren born

Financial Changes:

• ☐ Significant increase or decrease in assets
• ☐ Purchase or sale of real estate
• ☐ Start or sell a business
• ☐ Receive inheritance
• ☐ Retirement
• ☐ Major investments

Geographic Changes:

• ☐ Move to different state
• ☐ Purchase property in another state

Personal Changes:

• ☐ Your health deteriorates
• ☐ Named executor/trustee can't serve
• ☐ Relationship changes with named agents
• ☐ Change in wishes about distributions
• ☐ New charitable interests

Legal Changes:

• ☐ New tax laws
• ☐ Changes in estate/probate law
• ☐ California Proposition changes (like Prop 19)

Real-World Example: The 2005 Estate Plan

Richard created an estate plan in 2005 when his estate was valued at $800,000 (home + modest savings). The plan was appropriate then.

By 2024, when he died:

• His Glendale home appreciated from $300,000 to $950,000
• He had accumulated retirement accounts ($450,000)
• He had remarried (wife #2) but never updated his plan
• His children from first marriage were adults now
• One child had developed addiction issues
• Another child had a special needs child

Problems:

Problem #1: The plan left everything to his "children equally" with no provisions for his second wife. This violated California community property laws and led to litigation.

Problem #2: The plan gave his adult children their inheritance outright at his death. This meant:

• Child with addiction received $200,000+ immediately (spent on drugs within a year)
• Grandchild with special needs lost SSI eligibility when child inherited

Problem #3: The plan hadn't been updated for Proposition 19. His children couldn't keep the low property tax basis because they didn't use the home as their primary residence.

Problem #4: His IRA listed his first wife (deceased 2015) as beneficiary with no contingent. The IRA went to his estate, triggering probate and adverse tax consequences.

Costs:

• Litigation over spouse's rights: $45,000
• Probate of IRA: $18,000
• Property tax increases: $8,000/year ongoing
• Lost SSI benefits: $15,000/year
• Money wasted on addiction: $200,000+

Total Unnecessary Costs: $300,000+

What Would Have Prevented This: A simple review and update every 3-5 years. Cost: $1,000-$2,000 per update.

What Updates Typically Involve

Minor Updates (Trust Amendment):

• Change trustees or executors
• Change guardian nominations
• Adjust distribution percentages
• Add new beneficiaries
• Change specific gifts

Cost: $500-$1,500 for amendment

Major Updates (New Trust/Full Restatement):

• Remarriage with new estate plan
• Significant legal changes
• Complete change in goals
• Old document from 15+ years ago

Cost: $2,000-$4,000 for full restatement or new plan

Updating Other Documents

Don't Forget:

• Beneficiary designations (review annually)
• Powers of attorney (update every 5-7 years)
• Health care directives (update every 5-7 years)
• Business succession plans
• Insurance policies

How to Fix It

Create an Update Schedule:

Annual Review (Self):

• Review beneficiary designations
• Note any life changes
• Confirm named agents still appropriate

Every 3-5 Years (With Attorney):

• Comprehensive estate plan review
• Updates as needed
• Review for new laws
• Coordinate all documents

After Major Life Events (Immediately):

• Don't wait for scheduled review
• Call attorney within 30 days of major change
• Update before memory fades or circumstances complicate

Cost: $500-$2,000 every 3-5 years

Savings: $20,000-$100,000+ by avoiding outdated plan problems

Set a Reminder: Put a recurring calendar event for "Estate Plan Review" every 3 years. When the reminder comes up, call your attorney to schedule a review. This simple step can save your family tens of thousands of dollars.

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The Bottom Line: What These Mistakes Really Cost

Let's add up the potential costs of these seven mistakes:

Mistake	Potential Cost	Prevention Cost
1. No estate plan	$40,000-$100,000	$3,500
2. DIY/online forms	$50,000-$150,000	$3,500
3. Unfunded trust	$30,000-$80,000	$0 (part of trust setup)
4. Wrong beneficiaries	$50,000-$500,000	$0 (just paperwork)
5. No incapacity planning	$15,000-$30,000	$1,000
6. Ignoring taxes	$50,000-$300,000	$2,000
7. Never updating	$20,000-$100,000	$1,500 every 3-5 years

Total Potential Cost of All Mistakes: $255,000-$1,260,000

Total Cost of Proper Planning: $10,000-$15,000 over lifetime

Savings: $240,000-$1,245,000+

Your Action Plan: Avoid These Mistakes

☐ Step 1: Assess Your Current Situation

• Do you have an estate plan?
• When was it last reviewed?
• Is your trust funded?
• Are beneficiary designations current?

☐ Step 2: Schedule a Comprehensive Review Even if you have a plan, have it reviewed by a qualified estate planning attorney. Cost: $300-$500 for review.

☐ Step 3: Address Problems Immediately Don't put off necessary updates or corrections.

☐ Step 4: Create a Maintenance Schedule

• Annual: Review beneficiaries yourself
• Every 3-5 years: Attorney review
• After major life events: Immediate attorney consultation

☐ Step 5: Ensure Complete Funding If you have a trust, verify all assets are properly titled.

☐ Step 6: Communicate with Family Tell your family:

• Where documents are located
• Who your agents/trustees are
• Your general wishes
• Who to contact (your attorney)

☐ Step 7: Document Everything Keep organized records of:

• All estate planning documents
• Beneficiary designations
• Asset inventory
• Location of important items
• Contact information for advisors

Schedule Your Free Estate Planning Review

Don't let these costly mistakes happen to your family. Whether you need to create your first estate plan, review an existing one, or fix problems you've discovered, professional guidance can save your family tens or hundreds of thousands of dollars.

As a Glendale estate planning attorney with experience in both creating plans and litigating cases where plans failed, I can help you:

In Your Free Consultation:

• Review your current situation
• Identify potential problems or gaps
• Explain options specific to your needs
• Discuss California-specific issues (Prop 19, community property)
• Provide clear cost estimates
• Answer all your questions
• Create an action plan

Common sense estate planning today prevents expensive problems tomorrow.

Call (818) 291-6217 or visit our contact page to schedule your free estate planning review.

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About the Author

Rozsa Gyene (State Bar No. 208356) is a California estate planning and trust litigation attorney serving Glendale, Burbank, Pasadena, and throughout Los Angeles County. With experience in both creating estate plans and litigating disputes caused by poor planning, Rozsa provides practical guidance on avoiding costly mistakes and protecting your family's future.

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Disclaimer: This article provides general information about estate planning in California and should not be construed as legal advice. Every situation is unique. California laws change regularly, and this article reflects laws in effect as of January 2025, including Proposition 19. Consult with a qualified California estate planning attorney about your specific circumstances.