A well-constructed estate plan ensures that your wealth, property, and personal wishes are respected when you pass away. Mistakes, even minor ones, can derail an otherwise well-drafted estate plan. Tax planning errors can lead to serious consequences, especially when those errors increase the tax burden on your estate or your heirs. Estate taxes, gift taxes, and income taxes can diminish the value of the assets you leave behind if not properly accounted for in your plan. To help ensure that your estate plan works as intended, the attorneys at Legacy Care Law Firm explain the risks of DIY estate planning in your New Hampshire estate plan.
- Underestimating the Impact of Estate Taxes. An estate tax is a levy on the value of a decedent’s estate before assets are transferred to heirs. These taxes can be assessed at both the state and federal levels. New Hampshire does not impose a state level estate tax or an inheritance tax; however, Massachusetts does impose a state estate tax for estate valued at more than $2 million. At the federal level, the exemption for 2025 is $13.99 million, meaning only estates exceeding that amount are subject to federal estate tax. Still, that number may decrease significantly in 2026 as the sunset provision in the 2017 estate tax reduction law are triggered. If you assume your estate will remain under the threshold, you risk exposure should the law change, or your asset values grow. Including tax planning provisions in a revocable living trust or other estate instruments can reduce or even eliminate this burden altogether.
- Failing to Specify How Estate Taxes Should Be Paid. In cases where taxes cannot be avoided, it is important to clarify who will be responsible for covering them. Often, estate planning documents contain standard language stating that all taxes must be paid from the residuary portion of the estate, meaning the part that remains after specific gifts have been made. This default language can create an unintentional imbalance among your beneficiaries. For example, imagine one child receives your home, another a business interest, and a third receives whatever remains. If the trust directs taxes to be paid from the residuary estate, the third child could bear the full cost of the estate tax, while the others receive their inheritances untouched. This situation can lead to resentment, inequity, and legal conflict among heirs. A better solution is to allocate tax liability proportionately or to specify which assets may be liquidated to pay any taxes due.
- Ignoring the Income Tax Consequences of Inherited Assets. Most individuals assume that an inheritance is a tax-free gift. While New Hampshire does not impose an income tax on inherited property, and the federal government does not tax the value of inheritances directly, income generated from those assets may still be taxed. If a beneficiary inherits a bank account and then earns interest on the balance, that interest is subject to income tax. The same applies to rental income, dividends, and other profits derived from inherited property. Certain assets, such as retirement accounts, carry built-in tax obligations. A traditional IRA or 401(k), for instance, has not been taxed during the account holder’s lifetime. When the account is passed on, the beneficiary must pay ordinary income taxes on withdrawals. In addition, a handful of states do impose an inheritance tax. If your beneficiaries live in a state with an inheritance tax you should take that in account when creating your estate plan. Failing to anticipate these tax burdens can reduce the true value of the inheritance.
- Mismanaging Property Owned in Other Jurisdictions. If you own real estate or other property outside New Hampshire, such as in Massachusetts, you must understand how that state’s tax laws might apply to your estate. Massachusetts, for instance, imposes a state level estate tax. A few states even impose inheritance taxes even when the decedent resided elsewhere. This means your estate could be subject to taxation in multiple states, depending on where your property is located. Without proper planning, these additional tax obligations can surprise heirs and complicate the estate administration process. Consulting with an estate planning attorney who is familiar with multi-state taxation is essential if you have holdings beyond New Hampshire’s borders. It may also be worthwhile to transfer out-of-state property into a trust, which can streamline asset management and reduce exposure to probate or taxation in other jurisdictions.
- Misunderstanding the Rules Around Gifting. Giving during your lifetime can reduce the size of your taxable estate and bring personal satisfaction; however, lifetime gifts must be made strategically to avoid unintended tax implications. The Internal Revenue Service sets annual and lifetime limits on tax-free giving. As of 2025, you may give up to $19,000 per person per year without reducing your lifetime exemption. Gifts exceeding this amount count against your lifetime limit of $13.99 million. If gifting is part of your estate planning strategy, it must be done thoughtfully and well in advance.
The Importance of Proactive Planning
Tax mistakes can undermine even the most carefully written estate plans which makes it vital to have a clear understanding of both the federal and New Hampshire-specific tax landscape in order to protect your financial legacy and your loved ones. With proper guidance, you can create a plan that ensures your assets are preserved and distributed in accordance with your wishes without subjecting your heirs to unnecessary tax burdens. An experienced New Hampshire estate planning attorney can help you identify the best strategies to reduce taxes and avoid common pitfalls, providing clarity and peace of mind for both you and your family.
Can We Help You Avoid the Risks of DIY Estate Planning in New Hampshire?
For more information, please join us for an upcoming FREE seminar. If you would like assistance avoiding the risks of DIY estate planning in New Hampshire, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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