The Inheritance Mistake That's Costing Wealthy Families Millions

You spent decades working hard and building wealth. But one wrong move in your estate plan could quietly undo a lifetime of smart decisions.

It's a mistake that's shockingly common among affluent families. It doesn't make headlines, but it does trigger massive tax bills -- and it's costing heirs millions every year.

The worst part is that most people don't even realize they're doing it.

If you're serious about preserving your wealth, this is the one inheritance trap you need to avoid.

The silent killer of wealth transfers: Mismanaging capital gains

Let's start with the culprit. The biggest inheritance mistake wealthy families make is transferring appreciated assets -- like stocks, real estate, or business interests -- too early.

When you gift these assets while you're still alive, the cost basis for the gifted assets remains the same. That means they could owe massive capital gains taxes when they sell. But if those same assets are passed down after death, they typically qualify for a step-up in basis, resetting the value to the fair market price at the time of your passing and wiping out most or all of the capital gains tax burden.

In other words: Gifting early might feel generous, but it could leave your heirs with a huge tax bill they never saw coming.

A nearly half a million dollar lesson

Imagine you bought a vacation property decades ago for $250,000. Today, it's worth $2.5 million. If you gift it now, you're giving your loved ones that $250,000 basis. When they sell it, they could owe taxes on $2.25 million in gains -- potentially a nearly $500,000 hit.

But if they inherit the property after your death, they get a step-up in basis to $2.5 million. If they sell it soon after, the tax liability could be close to zero.

That's the difference between passing on an opportunity and passing on a burden. With our partner, SmartAsset, you can get matched with up to three fiduciary advisors so you can get professional advice.

Why this mistake keeps happening

Affluent families often want to help their children now, not later. Others might assume gifting while they're alive simplifies the estate or avoids probate. Some people are simply unaware of the step-up rule or don't realize how significantly it can reduce tax obligations.

And in some cases, families are acting on outdated advice or relying on informal, DIY estate planning that doesn't reflect current tax law or their asset mix.

Other expensive mistakes to watch for

This mistake doesn't exist in a vacuum. It's often paired with others, including:

• Outdated wills or trusts that don't reflect your current wealth or family structure.
• Unequal distributions that create resentment or even lawsuits.
• Uncoordinated assets, like forgetting to update beneficiaries on retirement accounts or insurance policies.
• Failing to plan for state-level inheritance or estate taxes, which vary widely across the U.S.

If you haven't reviewed your estate plan in the last few years -- especially with the sunsetting of key tax provisions likely in 2026 -- now is the time. Oftentimes people don't know what they don't know and professional help is necessary. This no-cost quiz from our partner, SmartAsset, makes it easier to find a fiduciary financial advisor.

How to protect more of your money

Protecting your wealth starts with proactive planning. That means:

• Working with an estate attorney and CPA to create or update a tax-efficient plan.
• Remembering that under gift tax rules the IRS allows you to give away up to $19,000 in 2025 in money or property to as many people as you like.
• Avoiding premature gifting of appreciated assets, unless it's part of a larger strategic approach.
• Considering revocable trusts, which can streamline asset transfers and protect privacy.
• Communicating with your heirs about your wishes and how to prepare for their responsibilities.

These steps aren't just about saving money. They're about passing on confidence, clarity, and continuity.

Don't let a technicality drain your life's work

The best estate plans don't just transfer money -- they preserve it. And they do it in a way that minimizes friction, maximizes impact, and honors the values you worked so hard to build.

Talk to a trusted advisor. Revisit your estate plan. The right conversation today could save your family a fortune tomorrow.