Estate Planning: Federal Estate Taxes

How to reduce the taxation of your estate.

Are you an investor seeking to minimize estate taxes to preserve wealth?

It’s essential to design your estate plan around relevant estate tax, inheritance tax, and gift tax rules. You may be exposed to the estate, inheritance, gift tax, or generation skipping tax depending on your circumstances.

The first step is to understand the rules, after which you can strategically plan your estate to maximize your desired transfers to your beneficiaries net of taxation, whether they are your family, children, or charities.

Estate Tax

When you die, your assets are tallied up into your taxable estate. This differs from your probate estate, the assets specifically going through probate. There is a common misconception that placing your assets in a revocable trust will minimize estate taxes. This is incorrect. The revocable trust will minimize your probate estate (or avoid probate altogether) but will not reduce your estate taxes.¹

Federal Estate Tax

Will I pay the 40% federal estate tax on my estate?

As of 2026, each United States citizen has a lifetime estate and gift tax exemption of $15 million.² A married couple can effectively double that amount to $30 million. When one spouse dies, any unused estate and gift tax exemption can be transferred (or “ported”) to the surviving spouse, a feature known as portability. As a result, most Americans will not be exposed to or pay any federal estate tax unless they have a very high net worth.

It’s important to note that the current estate and gift tax exemption is significantly higher than it was prior to the Tax Cuts and Jobs Act. Although those higher exemption levels were originally scheduled to sunset at the end of 2025, subsequent legislation permanently set the exemption at $15 million per individual beginning in 2026, with inflation adjustments in future years.

Even with the higher and now-permanent exemption, there may still be opportunities to reduce future estate taxes through strategic lifetime gifting. To minimize taxation for your beneficiaries, consider gifting high-basis assets. In addition, if your estate is nearing or exceeds the applicable exemption amounts and includes assets with significant appreciation potential, gifting those assets during your lifetime may help reduce future transfer taxes by allowing that growth to occur outside your taxable estate.

Once you have a handle on your federal estate tax burden, you can determine whether you are also open to State estate or inheritance taxes. You can continue reading about state estate and inheritance taxes in the following article here.

1. Irrevocable trusts are often set up to minimize or avoid estate taxes, as the trust is taxed separately. It’s essential to determine whether your situation warrants the higher taxation on trusts (versus personal assets) to avoid potential estate taxes.
2. U.S. Library of Congress. The Estate and Gift Tax. https://www.congress.gov/crs-product/R48183