Sharing wealth with family members, close friends, or charitable organizations can be one of the most gratifying aspects of estate planning. Unfortunately, however, it can be easy to make mistakes when incorporating gifts into a comprehensive estate plan. Understanding potential gifting mistakes in advance can help you make informed decisions and avoid making costly errors when making gifts in your own estate plan. Toward that end, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain several common gifting errors that you can avoid making in your California estate plan.
Gifting in Your California Estate Plan
Providing financial assistance during your lifetime allows you to witness the positive effects of your generosity, whether that means helping a child purchase a home, supporting a grandchild’s education, or contributing to a cause that reflects your values. Many people in California appreciate the opportunity to create those experiences while they are still alive, rather than leaving all transfers to occur after death.
At the same time, some individuals prefer to postpone certain gifts until later to preserve financial security, maintain control over assets, or ensure long-term support for loved ones and organizations. While the emotional rewards of gifting are evident, the legal, tax, and practical consequences are often more complex than they initially appear. Errors in planning can result in unnecessary taxes, family disputes, loss of eligibility for public benefits, or outcomes that conflict with your broader estate planning goals.
Gifting Errors
Making a mistake when making gifts in your estate plan can be financially costly for you and/or the intended beneficiary. An error can also cause your estate plan to fail to operate as you intended. To avoid making mistakes, it helps to familiarize yourself with common mistakes, such as:
- Attempting Significant Gifts Without Professional Advice: Many people assume that gifting is straightforward, particularly when cash is involved. While small cash transfers may be relatively simple, larger or more complex gifts often require careful coordination. Transferring real estate, business interests, or investment accounts involves legal documentation, tax reporting, and proper titling to ensure the gift is valid and enforceable. Mistakes in deed preparation, failure to address property tax reassessment rules, or omission of required filings can create long-term complications. Errors may also expose the donor or recipient to unnecessary taxes or legal disputes. Working with an experienced estate planning attorney and, when appropriate, a financial advisor can help ensure that gifts are structured correctly and aligned with state and federal law, preventing costly mistakes that are difficult to correct after the fact.
- Misunderstanding Federal Gift Tax Requirements: Federal gift tax rules are another area where confusion is common. Each year, the Internal Revenue Service allows individuals to give up to a certain amount per recipient without triggering gift tax reporting. For 2026, that annual exclusion is $19,000 per recipient, and married couples may combine their exclusions to give $38,000 to the same individual.
Gifts exceeding the annual exclusion generally require the filing of a federal gift tax return, even if no immediate tax is owed. Many people mistakenly believe that gifts to close family members are exempt from these rules, which is not the case. Failure to file required forms can lead to penalties and complications for the estate later. Understanding the reporting requirements and maintaining accurate records of gifts is essential for compliance. Proper planning ensures that generosity does not inadvertently create administrative or tax problems.
- Assuming Estate Planning Documents Control All Transfers: Another frequent mistake is believing that a Will or trust governs the disposition of every asset you own. In reality, many assets pass outside of probate through beneficiary designations or contractual arrangements. Retirement accounts, life insurance policies, payable-on-death bank accounts, and transfer-on-death investment accounts are governed by the beneficiary forms on file with the financial institution. Problems arise when those designations are outdated or inconsistent with the rest of the estate plan. A California resident may revise a trust to provide for equal distribution among several children, while a retirement account still names only one child as beneficiary from years earlier. In that situation, the account passes directly to the named beneficiary, regardless of what the trust or Will states. Regularly reviewing and updating beneficiary designations is essential to maintaining consistency across your estate plan. Overlooking this step can create inequities, fuel family conflict, and frustrate your overall objectives.
- Misjudging Cost Basis and Capital Gains Consequences: One of the most significant yet commonly misunderstood aspects of lifetime gifting involves cost basis and capital gains taxation. Many assets, including real estate, stocks, and other investments, have an associated cost basis, which is usually the original purchase price adjusted for improvements or reinvestments. When an asset is transferred during your lifetime, the recipient typically receives your original basis. This distinction becomes critical when the recipient later sells the asset. Any increase in value from the original basis is generally subject to capital gains tax. For example, consider a California homeowner who purchased coastal property decades ago for a modest amount that has since appreciated dramatically. If that property is given to a child during life, the child may face a substantial tax liability upon sale, calculated from the original purchase price rather than the property’s current value. By contrast, assets inherited after death usually receive a step-up in basis to fair market value as of the date of death. That adjustment can significantly reduce or even eliminate capital gains tax if the asset is sold shortly thereafter. Failing to account for this difference can leave beneficiaries with unexpected tax burdens and undermine the intended benefit of the gift.
- Assuming All Recipients Can Manage Large Gifts Wisely: Another common oversight involves the recipient’s ability to handle the gift responsibly. Some beneficiaries may struggle with financial management, face creditor issues, or encounter personal challenges that make outright gifts risky. A sudden infusion of assets can be mismanaged or lost to external pressures. Trusts offer a flexible solution in these situations. By placing assets in trust, you can control the timing and conditions of distributions, provide professional oversight, and protect assets from creditors or imprudent decisions. Thoughtful structuring ensures that gifts serve their intended purpose over time rather than being quickly exhausted.
- Losing Track of the Lifetime Gift and Estate Tax Exemption: In addition to the annual exclusion, federal law provides a lifetime exemption that shelters a significant amount of wealth from gift and estate taxes. For 2025, that exemption is $13.99 million per person, with scheduled increases in subsequent years. Gifts that exceed the annual exclusion reduce the available lifetime exemption.
Many individuals underestimate how cumulative gifts can erode this exemption over time. Without careful tracking, substantial lifetime transfers may use up the exemption, exposing the remaining estate to taxation at death. In California, where property values and investment portfolios can be substantial, this issue is particularly relevant. Maintaining detailed records of all taxable gifts and working with professionals to monitor exemption usage helps avoid unpleasant surprises and preserves flexibility in long-term planning.
- Making Gifts That Disrupt the Overall Estate Plan: Lifetime gifting can create problems when it is not carefully integrated into the broader estate plan. For example, gifting a valuable asset to one child while intending to divide remaining assets equally among all children may lead to resentment or claims of unfair treatment. Without clear documentation, other beneficiaries may perceive the gift as an unintended imbalance rather than a deliberate decision. In California, such disputes can escalate into trust or probate litigation, consuming time, money, and family relationships. Clear communication and proper documentation are essential. Estate planning documents should specify whether a lifetime gift is meant to be an advance on inheritance or an additional benefit beyond what the recipient will receive later. Aligning gifts with the terms of your Will or trust helps ensure that your intentions are respected and reduces the risk of conflict.
- Overlooking the Effect of Gifts on Medi-Cal Eligibility: For Californians concerned about future long-term care needs, gifting can have serious implications for Medi-Cal eligibility. Medi-Cal applies a lookback period to identify asset transfers made for less than fair market value. Transfers within that period may result in a penalty during which benefits are unavailable. Even well-intentioned gifts to children or grandchildren can delay access to coverage when nursing home care or in-home assistance becomes necessary. Given the high cost of long-term care in California, such delays can rapidly deplete personal savings. Strategic planning, often involving irrevocable trusts or other asset protection tools, should be considered before making significant transfers.
Can We Help You Avoid Making Common Gifting Errors in Your California Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you would like assistance to avoid making common gifting errors in your California estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
- How a No Contest Clause Can Help Your California Estate Avoid Probate Litigation - August 17, 2026
- Reasons to Incorporate a Living Trust into My California Estate Plan - August 16, 2026
- What You Need to Know about Funding a Trust in California - August 15, 2026
