You’ve built significant wealth. Your portfolio has been carefully curated, your investments diversified, and your risk calculated. Yet, for many affluent families, the final and most devastating risk lies in poor tax planning.
As tax laws undergo their perpetual evolution, a small error today can become a seven-figure liability tomorrow—especially when complex assets and significant estates are involved. In 2025, proactive action isn’t optional; it’s the difference between protecting your legacy and paying a massive, preventable penalty.
We’ve consulted with leading wealth strategists to identify the three costliest mistakes High-Net-Worth (HNW) individuals are making right now.
The average financial mistake can cost you tens of thousands. These three mistakes can cost your family up to $1 million or more.
Mistake #1: Ignoring the Full Potential of the ‘Step-Up in Basis’ Window
The concept of a step-up in basis is one of the most powerful tax advantages available to investors. When an individual inherits an asset (like stock or real estate), its cost basis “steps up” to the fair market value on the date of death. This effectively erases all accumulated capital gains tax liability.
Mistake #1: Ignoring the Full Potential of the ‘Step-Up in Basis’ Window
The concept of a step-up in basis is one of the most powerful tax advantages available to investors. When an individual inherits an asset (like stock or real estate), its cost basis “steps up” to the fair market value on the date of death. This effectively erases all accumulated capital gains tax liability.
The $1M Mistake: Improper Asset Titling
The critical failure we see in HNW estate planning is failing to ensure highly appreciated assets are titled correctly to receive the maximum step-up. Many wealthy individuals inadvertently transfer assets out of the step-up advantage through:**
- Joint Tenancy: In some jurisdictions, only 50% of the asset may receive the step-up, locking in capital gains on the other half.
- Irrevocable Trusts (Outdated): Using older trust structures that were designed for pre-2018 estate tax rules but now prevent the basis reset entirely.
Action Point: Review all high-value, highly appreciated assets (stocks, property) with your estate planner. Ensure these assets are correctly positioned to benefit from the full basis adjustment at the time of transfer.
Critical Error #2: Inefficient Use of Gifting and Grantor Trusts
The annual gift tax exclusion allows you to transfer a substantial amount of wealth tax-free to as many individuals as you wish, every year. This is a foundational tool for estate shrinkage.
The $1M Mistake: Inefficient Grantor Trusts
Affluent savers often use Grantor Retained Annuity Trusts (GRATs) or similar sophisticated tools, but the mistake lies in failing to reset or re-evaluate them annually. These trusts are highly sensitive to prevailing interest rates and asset performance.
If your GRAT was established during a high-interest environment but your underlying assets have plateaued, the trust may be significantly inefficient—or even detrimental—when measured against the time and complexity required to manage it. Furthermore, HNW individuals often fail to execute gifts to trusts early enough in the year, losing a full year of tax-free growth.
Action Point: Use your annual exclusion amount before the market appreciates further. Review all Grantor Trusts to ensure the residual interest remains tax-efficient in the current rate environment. A poorly timed or executed sophisticated trust structure often costs more than a simple, optimized strategy.
Critical Error #3: Neglecting State and Local Tax (SALT) Planning
Mistake #3: Ignoring the Ripple Effect of State-Level Tax Strategy
For the cosmopolitan individual, state residency is often flexible, but the tax implications are rigid. Since the $10,000 cap on the SALT deduction severely restricts tax write-offs for high earners in high-tax states, HNW families have had to become creative.
The $1M Mistake: Unplanned Residency and Business Location
The critical error isn’t staying in a high-tax state; it’s failing to establish defensible documentation for a change in domicile. State revenue authorities aggressively audit wealthy individuals who claim non-residency. An audit that successfully proves your true domicile is a high-tax state can result in a retroactive bill for income, capital gains, and penalty fees that easily crosses the seven-figure threshold.
- The Litmus Test: Do you spend more than 183 days in the low-tax state? Have you changed your driver’s license, registered your vehicle, and relocated the emotional center of your life (family, primary doctor, artwork) to the new state?
Failing to fully commit to the residency change—and document it meticulously—is amistake with an extremely high penalty.
Action Point: If you have initiated a move to a lower-tax state, gather irrefutable documentation (utility bills, voter registration, bank statements) to prove your domicile change. This is a paper battle you cannot afford to lose.
For the affluent saver, ignorance of these three moves is not bliss—it is simply expensive. Tax planning is not an annual chore; it is an evergreen wealth preservation strategy.
Avoid the $1 Million Mistake by proactively engaging with a certified financial expert who specializes in HNW tax law for 2025. Your financial security is too important to leave to generic advice.