Peter Egolf

Financial Advisor | Burlington, Vermont & Wayne, Pennsylvania

(802) 556-3852(610)

Let's optimize your investments and simplify your finances. I guide my clients in achieving their financial goals by using low-cost, diversified, and tax-efficient ETF index investments.

Estate Planning: Federal Estate Taxes

How to reduce the taxation of your estate.

By Financial Advisor Peter Egolf

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?

In 2024, each United States citizen has a lifetime estate and gift tax exemption of $13.61 million. A married couple can double their exemption of $27.22 million. When one spouse dies, their unused estate and gift tax exemption can be transferred (ported) to the remaining spouse. This is termed “portability.” Thus, most Americans will not be exposed to or pay any federal estate tax presently 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 before the Tax Cuts and Jobs Act, which is set to sunset at the end of 2025. Thus, there is the possibility that the individual exemption could revert to pre-2018 levels of $5.49 million and the married exemption of $10.98 million.

Thus, there is an opportunity in 2024 and 2025 to use up the higher exemption through strategically gifting your assets. To minimize taxation to your beneficiaries, consider gifting high-basis assets. Also, if your estate is nearing or exceeds the current/future limitations and you have assets with the potential for significant appreciation, it could be wise to gift those assets now to utilize the exemptions before they revert.

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.

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