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Multi-Generational Wealth

Mastering the Family Wealth Transfer: Tax Strategies & Preparing the Next Generation

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Family wealth transfer is one of the most important financial steps for protecting what you have built and supporting future generations. Too many families lose wealth to avoidable mistakes, unclear plans, or missed opportunities. When managed with care, this process not only safeguards wealth but also reinforces family unity and fosters a lasting legacy.

Many families face a maze of tax rules, legal requirements, and emotional considerations that make this process feel overwhelming. Without a clear strategy, even well-intentioned plans risk unnecessary taxes, legal disputes, or fractured relationships.

What Taxes Come Into Play?

Before choosing a strategy, it is essential to understand the tax landscape that influences how wealth is transferred between generations. A few key taxes can significantly affect the amount ultimately passed on to your heirs. Knowing the basics early can help families avoid costly surprises.

  • Federal Estate Tax: This tax applies to the total value of an estate before assets are distributed. As of 2025, estates valued above $13.99 million may be subject to federal estate tax, which is paid by the estate and reduces the amount heirs receive.
  • State Estate and Inheritance Taxes: Several states have their own estate or inheritance taxes with different rules and exemption amounts. Inheritance taxes, paid by recipients, currently exist in five states (Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) and vary by the heir’s relationship to the deceased.
  • Gift Tax: This applies to lifetime transfers above the annual exemption of $19,000 per recipient as of 2025.Gifts above this amount reduce the lifetime estate and gift tax exemption.
  • Capital Gains Tax: If heirs sell inherited assets that appreciate after the date of death, they may owe capital gains tax. Fortunately, the stepped-up cost basis usually limits the taxable gain.
  • Income Tax: Inheritances themselves are generally not subject to income tax, but any income they generate, like dividends or rent, remains taxable.

Tax-Efficient Wealth Transfer Strategies

Every family’s financial picture is unique, but thoughtful planning can significantly impact how much wealth remains in the family over time.

Annual Gifting

Giving smaller gifts over time can reduce the size of your taxable estate. As of 2025, you can give up to $19,000 per recipient each year without triggering gift taxes. Because these gifts don’t count against your lifetime exemption ($13.99 million per individual), this approach is simple, flexible, and surprisingly powerful. Good record-keeping is key, but the strategy itself is straightforward and widely used.

Trusts

Trusts allow you to determine how and when assets are distributed while unlocking meaningful tax benefits. They may also protect family wealth from creditors and divorces. A few common options include:

  • Irrevocable Life Insurance Trusts (ILITs): Remove life insurance proceeds from the taxable estate, providing heirs liquidity without tax liability.
  • Grantor Retained Annuity Trusts (GRATs): Let the grantor transfer appreciating assets at a discount, with excess growth passing to heirs if the grantor outlives the annuity term.
  • Spousal Lifetime Access Trusts (SLATs): Allow one spouse to give assets to a trust that benefits the other spouse and eventually the children, achieving estate tax benefits.
  • Intentionally Defective Grantor Trusts (IDGTs): The grantor pays income tax on trust earnings, effectively making larger tax-free gifts to heirs over time.

Setting up trusts takes expertise, but they can be one of the most effective tools for long-term wealth preservation.

Direct Payments for Education and Medical Expenses

Paying a school or medical provider directly for someone else’s expenses is a powerful way to help family members without touching your gift tax limits. There’s no cap on these payments, and they don’t require filing gift tax returns.

Family Limited Partnerships and LLCs

An FLP or family LLC allows family members to pool assets such as real estate, investment portfolios, or business interests into a single entity, simplifying management and ownership transfer. The senior generation typically retains control as general partner or managing member while gifting limited partnership or membership interests to heirs.

Upstream Gifting

Instead of passing assets down the family tree, some families gift them up to older relatives such as parents or grandparents. When these relatives eventually pass the assets back down, the cost basis can reset to current market value, potentially reducing future capital gains taxes for the next generation. This strategy can be particularly effective with highly appreciated assets, but it requires careful planning to ensure the older recipient doesn’t face unintended tax or Medicaid issues.

Intra-Family Loans

Families can lend money at the IRS’s low Applicable Federal Rate, helping younger members fund a business, buy a home, or invest. As long as the loan is properly documented and interest is paid, this approach avoids gift tax while enabling wealth to grow within the family.

Jump-Start Roth IRAs

Gifting funds to younger family members with earned income to contribute to Roth IRAs leverages the advantage of many growth years ahead. Roth IRAs grow tax-free, and distributions in retirement are also tax-exempt.

529 Plan Rollovers into Roth IRAs

The SECURE 2.0 Act introduced provisions allowing unused 529 education savings plan funds to be rolled over into a Roth IRA for the beneficiary under specific conditions. This offers families more flexibility in funding education or retirement using the same pool of assets.

Protective Lifetime Trusts and Digital Asset Planning

Modern estates include more than property and bank accounts. Cryptocurrency, online businesses, domain names, and even social media accounts can hold real financial or sentimental value. A good plan outlines how these assets are stored, who can access them, and how they should be passed on. This avoids the all-too-common problem of valuable digital property becoming inaccessible after someone passes away.

Preparing to Transfer Wealth

Step 1: Organize and Know What You Have

Inventory all assets, liabilities, account details, and legal documents. Ensure beneficiary designations and ownership titles are current to avoid surprises.

Step 2: Clarify Your Wealth Transfer Goals

Are you prioritizing family business continuation, charitable giving, or education funding? Clear intentions direct the structure of your estate plan and can inform your financial team’s strategy.

Step 3: Update Trusts, Wills, and Other Documents

Review and revise wills, trusts, powers of attorney, and medical directives regularly. Test your plan against likely scenarios like divorce or incapacity.

Step 4: Communicate Early and Openly with Family

Initiate conversations about your estate plan, values, and financial realities. Use tools like family mission statements or wealth letters to align expectations.

Step 5: Involve Advisors and Educate Heirs

Many families work with trusted professionals to bring legal, tax, and financial expertise together and to help educate the next generation for responsible stewardship. Trusted guidance can make complex decisions clearer and ensure that everyone involved understands their roles.

SKY Investment Group supports families through this process by helping coordinate their advisory teams and prepare heirs for effective stewardship of their legacy.

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Step 6: Review and Adjust Over Time

Life changes and tax laws evolve. Schedule annual check-ins with your advisors and family members to keep your plan up to date.

Preparing the Next Generation for an Inheritance

Emotional Readiness

Inheriting wealth often coincides with a time of loss, which can add emotional weight to financial responsibility. Heirs may feel anxious, unprepared, or uncertain about expectations. Families can ease this transition by discussing values and goals openly beforehand, framing the inheritance as part of a shared purpose rather than a mere transfer of assets.

Financial Skills Development

Start financial education early, matching it to the heir’s age and experience. For young children, this might mean teaching basic concepts like saving and budgeting using allowance or gift money. As they grow, introduce lessons on investing, taxes, and financial planning using real-world examples.

Well before the inheritance transfer, introduce heirs to trusted family advisors like financial planners, accountants, and estate attorneys, so they become comfortable asking questions and understanding the family’s financial picture. Consider staged gifting, where smaller sums are given initially along with guidance on how to manage them responsibly.

Frequent Missteps to Avoid

Even well-designed plans can run into problems. Here are some common mistakes that can derail family wealth transfers and how to avoid them.

  1. Procrastinating: Waiting too long to plan can limit your options and increase tax exposure.
  2. Outdated documents: Wills and trusts that haven’t been updated can create confusion or even legal disputes.
  3. Skipping family conversations: Surprises often lead to conflict. Open communication prevents misunderstandings.
  4. Ignoring state tax rules: State estate or inheritance taxes can catch families off guard if they only focus on federal rules.
  5. Overlooking digital assets: Failing to plan for online accounts or cryptocurrency can leave valuable property locked away forever.

A little foresight goes a long way in avoiding these pitfalls.

Build a Wealth Transfer Plan that Works for Everyone

A well-designed wealth transfer plan carries both financial strength and the story of what matters most to your family. By combining smart tax strategies with honest conversations and clear preparation, families can build legacies that endure.

The best time to start is now. Small steps today can shape a stronger future for the people you care about most.

This article is for informational purposes only and is not meant to constitute tax, legal or financial advice. SKY Investment Group LLC (“SKY”) is an SEC registered investment advisor. Being registered with the SEC does not imply any specific level of skill or training. SKY is neither a certified public accounting firm nor a law firm and does not provide tax or legal advice, respectively, to clients; such services are provided through select third parties unaffiliated with SKY. Tax and estate planning strategies are unique to each client’s circumstances and success cannot be guaranteed. Please contact a tax or legal professional for advice in such matters. Investing involves the risk of loss, including the risk of loss of the entire investment. Diversification does not ensure a profit or protect against a loss.

Contact us today to start a conversation

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Teaching Children About Money: Tips for Building Lifelong Financial Habits

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As parents, you set the foundation for how your child views wealth, responsibility, and opportunity. Starting early matters, and how you teach matters just as much.

The goal is to create calm, honest moments that help children understand money without stress or pressure. When kids learn about money in a thoughtful way, they grow up seeing money as a tool, not a source of confusion.

The truth is that financial literacy and generational wealth only grow when families make it a shared responsibility. Children can learn how to manage money, save, budget, and even invest when parents create space for conversation.

For many high-net-worth families, money can feel abstract or complicated. That’s why it’s essential to give kids clear guidance so they learn the value of money, make confident decisions, and manage responsibility before adulthood.

Remember, children learn not just from what they are told, but also by watching parental behavior around money. Consistently modeling positive habits is key.

Start Early: Build a Foundation for Financial Literacy

Teach Your Toddler the Basic Concepts of Money

Start teaching your kids about money early. Toddlers don’t need to understand compound interest, but they can grasp simple ideas like the difference between needs and wants. Show them how trading coins for small toys works so they start connecting choices with outcomes.

A lemonade stand is another great way to teach kids about earning. It shows how effort creates value. When children see coins and bills change hands, they begin to understand that money is a tool they can learn to manage.

Introduce a Piggy Bank and Savings Account

Give your child a piggy bank to practice saving money. Once they understand the basics, help your child open a savings account. This illustrates how savings accumulate over time. Encourage your child to set goals for specific amounts of money and celebrate their progress.

Not every family approaches saving in the same way. Some may use cash and a piggy bank, others might prefer a simple app or a chart with stickers to track progress. The tool itself isn’t what matters. What matters is teaching your child to set clear goals and make thoughtful choices with the resources they have.

Earning, Spending, and Saving

Use Allowance as a Tool for Teaching Responsibility

Allowance gives kids a safe way to learn about managing money by connecting effort with reward. Even in wealthy families, this lesson is vital.

There are different schools of thought on allowances; some parents tie allowance to chores, while others provide a set sum to teach budgeting, or use a hybrid approach. Choose the system that best matches your family’s values, but what’s most important is that children handle money regularly and make real decisions.

You can split allowance into three categories: spend, save, and donate. This structure builds habits around money management. It shows children about money in a way that feels practical and real.

Let your child pick how to spend their money. If they make a poor choice, don’t bail them out. Consequences create powerful learning moments. Resist the urge to rescue children from every mistake. Low-stakes errors teach resilience and build real financial capability. These experiences help children develop self-efficacy far more than lectures can.

Show Them How to Budget

Budgeting gives kids a sense of control and teaches them how to plan ahead. Begin with simple categories such as toys, experiences, and donations to guide thoughtful decision-making. As they grow, you can include age-appropriate conversations about priorities and tradeoffs, but keep these focused on their personal budget, not the family’s.

A budget is one of the best ways to build financial literacy because it connects today’s decisions with tomorrow’s outcomes in a clear, low-pressure way.

How to Teach Children About Investing

Explain the Power of Compound Interest

Older kids can grasp compound interest when it’s explained with real numbers. Start with a simple example:

“If you put $100 into a savings account that earns 5% a year, after the first year you’ll have $105. In the second year, you’ll earn interest not just on the $100 but also on the $5, so your total keeps growing. If you leave that $100 alone for 10 years, it becomes more than $160 without adding another dollar.”

You can make this lesson tangible by using an online compound interest calculator or sketching it out on paper. Let your child pick different amounts of money and interest rates so they can see how time multiplies growth.

For high-net-worth families, this lesson matters even more. Understanding how compounding works teaches patience and encourages long-term thinking. It also helps children see why investing early creates freedom and opportunity later in life.

Once they understand compound interest, start introducing the basics of credit and debt. Explain the difference between a debit and a credit card, how borrowing works, and why interest on debt can add up quickly. For teens, consider supervised use of a low-limit credit card.

Help Your Child Start Investing Early

Once your child understands saving, introduce basic investing. A custodial or Roth account can give older kids hands-on experience. Start with simple investments that may be of interest to them.

Show them how every dollar invested has a purpose. Let them track their progress. Investing teaches kids about risk, reward, and decision-making. It’s a smart way to help them learn about money in the real world.

Use Real Life Examples

Everyday life gives parents countless chances to teach. Here are a few examples:

  • Grocery shopping together helps kids learn the difference between needs and wants.
  • Online games about money can reinforce budgeting skills in a fun way.
  • Letting a child manage money for a school event gives them real responsibility.
  • Saving for a toy or experience teaches patience and goal-setting. When they finally reach the goal, the lesson sticks.
  • Shopping for gifts gives kids a chance to plan spending, compare prices, and stick to a budget.

Above all, let children experience the outcomes of their financial choices, both good and bad, and discuss what they learned from each experience.

Encourage Your Child to Give

Donating teaches empathy and responsibility. When kids give to causes they care about, they learn that money is more than a tool for personal gain.

High-net-worth parents can match donations to amplify impact. This reinforces the idea that wealth brings opportunities to contribute to the world.

Prepare Them to Make Independent Financial Decisions

As your child begins to manage more financial responsibility, let them make real decisions. This could involve choosing how to spend money earned from a part-time job or deciding how much to save for a future goal.

Mistakes will happen. That’s part of the learning process. When kids make financial decisions and see the outcomes, they gain confidence and wisdom.

As children mature, let their responsibilities grow to include opening their own bank accounts or managing small debts (like paying back a sibling or parent), always with guidance but less intervention over time.

Prepare the Next Generation to Lead with Confidence

Teaching children about money isn’t a one-time event. It’s an ongoing process that grows as children grow. When parents provide consistent and mindful guidance, children build lifelong healthy money habits.

SKY Investment Group believes that families thrive when financial knowledge is shared across generations. You have the opportunity to help your children understand money, build strong habits, and step into adulthood with confidence. If you want your kids to grow into confident, responsible adults who understand the value of money, start the conversation today.

This article is for informational purposes only and is not meant to constitute tax, legal or financial advice. SKY Investment Group LLC (“SKY”) is an SEC registered investment advisor. Being registered with the SEC does not imply any specific level of skill or training. SKY is neither a certified public accounting firm nor a law firm and does not provide tax or legal advice, respectively, to clients; such services are provided through select third parties unaffiliated with SKY. Tax and estate planning strategies are unique to each client’s circumstances and success cannot be guaranteed. Please contact a tax or legal professional for advice in such matters. Investing involves the risk of loss, including the risk of loss of the entire investment. Diversification does not ensure a profit or protect against a loss.

Contact us today to start a conversation

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Common Mistakes When Transferring Wealth

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We spend a lifetime building wealth through hard work, smart investing, and thoughtful planning. But transferring that wealth to the next generation can be surprisingly complex. Without careful planning, even well-intentioned families can face unnecessary taxes, legal disputes, and damaged relationships.

At SKY Investment Group, we’ve guided families through the complex realities of wealth transfer for years, helping them turn careful planning into lasting impact. In this guide, we’ll explore the most common and costly wealth transfer mistakes people make and how to avoid them.

What We’ll Cover:

  1. Choosing the Wrong Executor or Trustee
  2. Misunderstanding Trust Funding and Management

1. Leaving the Estate Tax Exemption on the Table

Every U.S. citizen has a lifetime estate and gift tax exemption, which is an amount you can pass to heirs free of federal estate tax. Many families do not take full advantage of this exemption, often leaving potentially significant tax savings behind.

  • For 2025, the exemption remains at $13.99 million per individual (roughly $27.98 million for married couples).
  • Starting January 1, 2026, that exemption jumps to $15 million per individual (or $30 million for married couples) and will be indexed for inflation in subsequent years.
  • Unlike the prior law, the “Big Beautiful Bill” eliminates the scheduled “sunset” that would have reduced the exemption sharply. In other words, the $15 million (inflation-adjusted) threshold is now permanent unless future legislation changes it.

Another important point is that the generation-skipping transfer (GST) tax exemption increases in step with the estate and gift tax exemption. This means the same higher exemption amount also applies to assets passed directly to grandchildren or other “skip” beneficiaries, which can allow families to transfer wealth across multiple generations more efficiently.

What to do:

  • Use lifetime gifting strategically to reduce taxable estate size.
  • Leverage federal portability: married couples can combine exemptions if planned correctly.
  • Stay informed about changing exemption amounts (they can be adjusted by Congress).

Bottom line: Thoughtful planning can mean the difference between preserving wealth for your heirs and potentially losing a large portion to taxes. Many families benefit from spreading gifts over several years, taking advantage of both annual exclusions and lifetime exemptions to build an efficient, flexible transfer strategy.

2. Overlooking Trusts as a Tool for Protection and Control

Trusts aren’t just for the ultra-wealthy. They’re one of the most effective tools for protecting assets, minimizing taxes, and ensuring wealth is distributed according to your intentions. Without a trust, your estate may face probate, delays, and unintended outcomes. Assets passed outright to heirs may be vulnerable to creditors, divorce settlements, or financial mismanagement.

A well-structured trust can allow you to control how and when beneficiaries receive their inheritance. For example, you can schedule distributions at specific ages or tie them to milestones like education, homeownership, or career achievements. This can help protect heirs from external claims and, just as importantly, from the risks of receiving a large sum without financial guardrails.

Key advantages of trusts:

  • Avoid probate and maintain family privacy
  • Protect assets from creditors, lawsuits, and divorce settlements
  • Mitigate estate taxes and preserve wealth for future generations
  • Provide structured, staggered distributions rather than lump sums
  • Support beneficiaries who may not be ready to manage wealth responsibly

There are many types of trusts, but most fall into two broad categories. Revocable trusts allow you to maintain flexibility and control during your lifetime, while irrevocable trusts can offer stronger asset protection and tax benefits.

Tip: Work with a qualified estate planning attorney to determine the right trust structure for your goals and your family’s unique needs. Our financial advisors coordinate closely with your attorney and tax professional to ensure your investment, tax, and estate strategies all work together toward one cohesive plan.

3. Ignoring the Complexities of Blended Families

Blended families add a layer of complexity to estate planning. If you have children from a previous marriage, a new spouse, or stepchildren, simply leaving assets “to the family” can create unintended conflict.

Without clear legal structures, assets can end up with unintended beneficiaries, leaving some family members feeling overlooked or shortchanged. This is especially common when estate plans aren’t updated after major life events like a new marriage or divorce, which can change how blended families are structured.

How to address this:

  • Use trusts to ensure children and spouses are provided for as intended.
  • Clearly document wishes to avoid ambiguity.
  • Consider appointing a neutral trustee to reduce conflicts.
  • Communicate openly with family members about your intentions.

Clarity today prevents painful disputes tomorrow.

4. Avoiding Discussions with Heirs About Future Plans

Many families avoid talking about inheritance because it feels uncomfortable. But silence can lead to misunderstandings, resentment, or legal disputes after your passing.

Benefits of clear communication:

  • Prevents surprises that can fracture families.
  • Gives heirs time to emotionally and financially prepare.
  • Allows you to explain your reasoning, not just the numbers.
  • Helps identify potential issues early.

This doesn’t mean revealing every detail of your net worth. It means setting expectations, sharing your values, and ensuring your loved ones understand the why behind your plan.

5. Underestimating the Impact of Estate and Inheritance Taxes

Even with careful planning, heirs may face various taxes: federal estate tax, state estate tax, and sometimes income tax on certain assets (like retirement accounts).

Strategies That Can Mitigate Tax Burdens

  1. Use trusts to minimize the taxable estate.
    As mentioned above, strategically transferring assets into certain types of trusts can remove them from your taxable estate while still allowing you to set conditions on their use.
  2. Explore charitable giving strategies.
    Gifts to qualified charities can reduce the size of your taxable estate and generate income tax deductions during your lifetime. Tools like charitable remainder trusts or donor-advised funds allow you to support causes you care about while also achieving meaningful tax savings.
  3. Consider life insurance to provide liquidity.
    Estate taxes are often due in cash within a relatively short time after death. Life insurance can create immediate liquidity, so heirs do not need to sell assets quickly or at a discount just to cover taxes. This can be especially important for estates with real estate or illiquid investments.
  4. Coordinate with tax and legal advisors.
    Tax rules are complex and often change. A coordinated approach with estate attorneys, financial planners, and tax professionals helps ensure strategies work together, rather than in isolation, and that no key opportunities are overlooked.

6. Failing to Establish or Update Your Will

A will is the cornerstone of any estate plan. Without one, state intestacy laws decide who inherits your property, and those rules may not match your wishes.

Even if you have a will, an outdated document can be just as problematic. Marriage, divorce, births, deaths, and moves between states can all affect your plan.

Best practices:

  • Create a legally valid will, even if your estate is modest.
  • Review and update every 3–5 years or after major life events.
  • Coordinate your will with other estate planning documents.

A current will ensures your voice guides the process (not the courts).

7. Neglecting Beneficiary Designations

Certain assets, such as retirement accounts, life insurance policies, and annuities, transfer through beneficiary designations, not through your will.

If those designations are outdated or inconsistent for those specific assets the beneficiary form will generally override the terms of your will or trust. It’s not uncommon for ex-spouses or deceased beneficiaries to still be listed.

How to avoid this mistake:

  • Review designations annually.
  • Ensure they align with your will and trust structure.
  • Name contingent beneficiaries as backups.

8. Choosing the Wrong Executor or Trustee

The executor or trustee plays a critical role in administering your estate or trust. Choosing someone simply because they’re your oldest child or closest friend may not be wise.

Qualities to look for:

  • Integrity and trustworthiness.
  • Financial literacy or willingness to work with professionals.
  • Ability to act impartially and handle complex situations.
  • Availability and willingness to serve.

In some cases, appointing a professional fiduciary may be the best choice to minimize family friction and ensure objective management.

9. Misunderstanding Trust Funding and Management

Creating a trust is only the first step, but funding it properly is essential. Many people set up trusts but fail to transfer ownership of assets into them, leaving the trust ineffective.

Common oversights:

  • Not retitling real estate, bank accounts, or investment accounts.
  • Forgetting to assign business interests or intellectual property.
  • Leaving beneficiary designations outdated instead of naming the trust
  • Failing to update newly acquired assets.

Example Scenario
A couple set up a revocable living trust to avoid probate and simplify the transfer of their home and investment accounts to their children. However, they never retitled the house or moved the accounts into the trust. When they passed away, the assets had to go through probate anyway, delaying distributions and adding legal costs the trust was meant to prevent.

10. Overlooking State-Specific Laws and Tax Rules

State laws vary widely in how they treat estate taxes, inheritance taxes, and property transfers.

Some states have no estate tax, while others impose their own, separate from federal law. Residency rules can also affect how assets are taxed. For example in Connecticut and Massachusetts, only the amount above the exemption is taxed. New Hampshire has no state estate tax. Below is a snapshot of tax rules of certain close by states. This is provided for informational purposes only.

State

Estate Tax?

Exemption / Threshold (most recent)

Tax Rate / Notes

Connecticut

Yes

$13.99 million for 2025 estates
Flat 12% above the exemption
Massachusetts

Yes

$13.99 million for 2025 estates
Progressive rate from 7.2% – 16% above the exemption
New Hampshire

No

No state estate tax; no inheritance tax
Only federal estate tax applies
New Jersey

No

Inheritance tax exemption depends on the relationship to the deceased.
Inheritance tax rate dependent on relationship to deceased. Ranges from 0-16%
New York

Yes

$7,160,000 exemption as of 2025
3.06% – 16% above the exemption. Estates over $7,518,000 lose exemption entirely.

What to consider:

  • Know your state’s estate and inheritance tax laws.
  • Review whether moving or establishing residency elsewhere could impact your plan.
  • Ensure your documents comply with local law. Out-of-state templates often miss nuances.

11. Underestimating Medicaid & Long-Term Care Implications

Long-term care can quickly deplete an estate. Many families are unaware that gifting assets can affect Medicaid eligibility. Medicaid has a look-back period (typically five years in most states) during which any gifts or transfers of assets for less than fair market value can delay or reduce eligibility for coverage. The idea is to prevent people from giving away assets just to qualify for government assistance.

Strategies to consider:

  • Use irrevocable trusts to protect assets while preserving eligibility.
  • Consider long-term care insurance to reduce financial risk.
  • Start planning early. Last-minute transfers can trigger penalties.

12. Overlooking Generation-Skipping Transfer (GST) Tax

The GST is designed to prevent families from avoiding estate taxes by skipping a generation (e.g., leaving assets directly to grandchildren).

This tax can even apply unintentionally, such as when a child predeceases a parent and their share passes directly to grandchildren, effectively skipping a generation.

Ways to mitigate GST tax exposure:

  • Understand when GST tax applies and how exemptions work.
  • Use GST-exempt trusts for multigenerational wealth planning.
  • Coordinate with professionals to structure transfers strategically.

Even families with moderate estates can be affected, so don’t overlook this area.

13. Failing to Plan for Digital Assets

In today’s digital world, many estates aren’t just physical and financial; they’re also digital. That includes everything from online bank accounts and cryptocurrency to social media and cloud storage.

Without clear instructions, heirs may not be able to access or manage these assets.

Best practices:

  • Create an inventory of digital accounts and assets.
  • Securely store passwords and provide legal authorization.
  • Include digital asset instructions in your estate plan. Under the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), fiduciaries need explicit legal authorization to access or manage these accounts.

14. Not Planning for Life’s ‘What Ifs’

 Life can bring unexpected turns, and preparing for them ensures your loved ones are supported no matter what happens. What if you become incapacitated? What if a beneficiary dies first? Taking these steps isn’t about expecting the worst. It’s about providing clarity, comfort, and protection for the people you care about most.

How to cover contingencies:

  • Include powers of attorney and healthcare directives.
  • Name contingent beneficiaries and backup fiduciaries.
  • Address simultaneous death scenarios in legal documents.

Planning Today Protects Tomorrow

Planning for a wealth transfer involves securing your family’s future, preserving harmony, and ensuring your legacy endures.

Common mistakes, from neglecting tax exemptions to overlooking digital assets, can lead to unnecessary costs, legal disputes, and heartache. But with proactive, comprehensive planning, these pitfalls are entirely avoidable.

Whether your estate is modest or substantial, the principles are the same:

  • Plan early.
  • Communicate clearly.
  • Review regularly.
  • Work with experienced professionals.

At SKY IG, we help ensure all the moving parts of your wealth transfer strategy work together seamlessly, creating a cohesive and tax-informed plan tailored to you.

This article is for informational purposes only and is not meant to constitute tax, legal or financial advice. SKY Investment Group LLC (“SKY”) is an SEC registered investment advisor. Being registered with the SEC does not imply any specific level of skill or training. SKY is neither a certified public accounting firm nor a law firm and does not provide tax or legal advice, respectively, to clients; such services are provided through select third parties unaffiliated with SKY. Tax and estate planning strategies are unique to each client’s circumstances and success cannot be guaranteed. Please contact a tax or legal professional for advice in such matters. Investing involves the risk of loss, including the risk of loss of the entire investment. Diversification does not ensure a profit or protect against a loss.