Why a Will Isn’t Enough: The Estate Planning Mistakes Investors Keep Making

Nate and Tom open this episode of the Major League Real Estate Podcast with a simple question: if you got hit by a bus tomorrow, what happens to all your stuff?

Tom admits he started an estate planning process and never finished it, which means his home state would decide where everything goes. Nate and Tom walk through what investors need to have in place and why a plan protects your family as much as your assets.

The Three Questions to Ask

Tom says every investor should be able to answer three questions. What happens to your property when you die? What happens if you can no longer make decisions for yourself? And how do you pass wealth to the next generation with the least tax and the least hassle?

Nate adds that the best gift you can leave your family is clarity. They are already dealing with a loss, and they should not also have to guess who gets what or who makes medical decisions.

The Six Core Documents

Tom breaks a basic estate plan into six documents: a will, a revocable living trust, a pour-over will, a durable power of attorney, a healthcare directive, and a HIPAA authorization.

The will names who gets what and who cares for any minor children. The living trust is the main vehicle for avoiding probate. The pour-over will catches any asset you forgot to put in the trust. The last three cover who handles your finances and medical decisions if you are incapacitated, and who can access your medical information.

Why a Will Is Not Enough

A will does not avoid probate, which Nate describes as a long, expensive court process. He has seen probates drag on for three years or more. Owning property in more than one state can mean dealing with more than one court.

Tom also points out that wills can be challenged, while assets held in a living trust are much harder to contest. Costs add up from attorneys, estate planners, and court fees, so the old saying about an ounce of prevention applies here.

Step-Up in Basis and the Estate Tax Exemption

The biggest tax benefit for heirs is the step-up in basis.

Tom gives an example: a property bought for $1 million in 1995 and worth $5 million today. Sold during life, it could trigger tax on a $4 million gain plus depreciation recapture. If the owner dies holding it, the heirs receive it at the $5 million fair market value and could sell it with little or no tax. The current estate tax exemption is $15 million per person, or $30 million for a married couple, and it is indexed for inflation.

Nate and Tom note that a future administration could lower it, and lifetime gifts above the annual exclusion of $19,000 reduce the exemption.

Complex Trusts and Your Annual Review

Investors nearing the exemption may need irrevocable or complex trusts, such as SLATs, ILITs, GRATs, and QPRTs. These move appreciating assets out of your taxable estate.

Tom and Nate save the details for a future episode. For now, they recommend an annual review with your estate attorney and CPA. Check how your assets are titled, who your beneficiaries are, whether new purchases landed in the right place, and how close your balance sheet is getting to the exemption.

Schedule a discovery call today.