Can You Protect Your Estate From Being Audited?

Planning and executing a well-thought-out and comprehensive estate plan is crucial to safeguarding your family’s financial future. An estate plan that will safeguard your family’s interests is also one that is implemented to minimize the risk it will be audited by the Internal Revenue Service (IRS). 

Estates over $13.99 million in value for individuals who pass away in 2025 must file an estate tax return. And the higher the estate value, the higher the risk of an audit. Indeed, in the past, the IRS audit rate of estates over $10 million has been as high as 22 percent. The good news is there are ways to reduce the chance your estate will be audited. An experienced Naperville, IL estate planning attorney can help build an estate plan that protects your interests in every way.

What Issues Trigger Estate Plan Audits?

There are several common estate tax return triggers. Keeping these issues in mind when implementing the estate plan can help mitigate your chance of being audited:

Asset Valuation

This is probably the most common reason why estates get audited. The IRS often challenges the value of items in an estate that are difficult to value, even if they have been officially appraised, such as art, collectibles, and antiques. It will inspect the appraiser’s method for valuing the estate. Likewise, an estate whose value is largely in real estate, privately held companies, or family limited partnerships will also draw notice because it is tough to value these types of assets and investment vehicles or their tax “discount.” 

Large Estates and Past Due Taxes

Larger estates are more likely to be audited, as are estates that owe tax to the IRS.

Missing or Incorrect Information

Failing to answer questions on an estate tax return, providing incorrect information, or failing to include a required attachment can make an estate tax return more vulnerable to audits, for obvious reasons. Likewise, when assets are not properly described, this can lead to audits as it triggers questions.

Inconsistencies

Inconsistencies can raise questions. If one estate planning document grants a beneficiary a certain property but that property is left out of the tax return, this can be a problem, for example. Likewise, if a deduction for real estate is made but no real estate is reported on the return, that can raise red flags. 

Controversial Issues

Any controversies surrounding the estate can be problematic. These could be things like heirs making claims against the estate or unreasonable attorneys’ fees.

Missing Property

The estate tax return needs to make sense as a whole. The IRS expects that people who own certain valuable assets will also own (and report) other valuable assets. For example, if furniture for a multimillion-dollar home does not reflect the price expectations for that kind of property, that could raise questions. 

Life Insurance

The IRS will often challenge whether life insurance was correctly excluded from the estate. If the insured person retains any interest in the life insurance – such as the right to change the beneficiary – the IRS may flag the estate tax return for audit. 

Gifts

The IRS challenges gifts frequently because one effective estate planning strategy is to gift assets in order to effectively remove them from the taxable estate. The IRS will often question whether the gift that placed assets outside of the taxable estate was legitimately a gift for tax purposes. It will do this by either challenging the value of the gift and arguing that it is higher than the stated value, or by claiming that the gift was not made, as the owner did not truly give up control of the asset.

What Steps Can You Take to Protect Your Estate Plan From Audit?

While knowing the common audit triggers is half the battle to avoiding being the target of them, there are additional steps you can take to minimize the risk of audit:

Assume That the Estate Plan Will Be Audited 

When making and implementing your estate plan, consider every decision from the perspective of an IRS auditor, and hire a qualified team of legal, valuation, and tax experts who will do the same. 

Invest in Appraisals

Ensuring the property appraisals are conducted by professionals with extensive experience with IRS appraisals can minimize the risk that the IRS will see issues with valuation. Appraisal documents should contain detailed information on how the value was calculated.

Collect and Preserve Documents

Having a strong paper trail for all the property in your estate can head off an IRS audit, or at least help the estate prove that the assets are not taxable. This means past income and gift tax returns, all financial statements, invoices, and any other document that shows the history and value of the asset.

File a Gift Tax Return

Especially if you suspect that the IRS will question the value of the gift, you should file a gift tax return, even if the gift qualifies for the gift tax exclusion. This gets the clock running on the three-year statute of limitations that the IRS has to challenge a gift tax return. This may prevent challenges to these gifts being made years later as an audit of the estate. 

Take Caution With Family Limited Partnerships

Family Limited Partnerships (FLPs) can be a great estate planning tool, but they often raise red flags at the IRS. To successfully integrate an FLP into an estate plan you should regularly review the business purpose of the FLP and ensure that your control of the FLP is limited, as this is where issues with FLPs arise. 

Contact a Naperville, IL Estate Planning Attorney 

For estates with significant assets, it is not enough to implement an estate plan that addresses your wishes and minimizes taxes. It is also important to protect the estate plan from being audited. An experienced Naperville, IL estate planning attorney can advise you on limiting the odds your estate will be audited by the IRS. At the Gierach Law Firm, we represent high-net-worth families with all their estate planning needs. Call our offices at 630-756-1160 for a consultation today.