A Guide to Estate Tax Planning

If you have worked hard to amass wealth during your lifetime, or have been a careful steward of wealth that was entrusted to you, you may be thinking not only about estate planning, but about estate tax planning. Estate tax planning helps to ensure that the assets you have protected for your loved ones will pass to them, not to the government, upon your death. 

Benjamin Franklin is said to have written, “In this world, nothing is certain except death and taxes.” While no amount of forethought can prevent the former, taking the time to plan ahead can at least spare your family some of the pain of the latter. Let’s talk about how. 

What You Need to Know About Estate Tax

In a nutshell, the estate tax is a tax on the transfer of your wealth after you die. But not everyone has to pay estate tax; in fact, very few estates are taxed. That’s because of something called the “estate tax exemption.” (It is also referred to as the “unified exemption” or “lifetime exemption” because gifts made during your lifetime may reduce the estate tax exemption is the amount of a taxable estate that can pass free of estate tax. The exemption amount may change with legislation and is adjusted annually for inflation. 

For 2025, the estate tax exemption is $13.99 million, or $27.98 million per married couple. Since most people don’t have estates that large, they may think they don’t need to worry about estate tax, or estate tax planning. But not so fast! Even if you don’t have that amount of assets right now, your estate can grow in value over time, and the amount of the exemption can drop, as it is currently scheduled to do. 

In 2017, the federal Tax Cuts and Jobs Act (TCJA) increased the amount of the federal estate tax exemption, but that law is scheduled to sunset at the end of 2025, meaning the exemption amount will drop back to 2017 levels (adjusted for inflation). Unless Congress extends the current exemption, many more estates will be vulnerable to estate tax on January 1, 2026, than they would have been on December 31, 2025.

How Estate Tax Planning for Beneficiaries Helps

Imagine that your estate is a bucket, the rim of which is the federal estate tax exemption amount. If you are able to keep the assets in the bucket below the rim, your estate will not be subject to estate tax. Assets that peek over the rim are taxable. 

If your estate were a literal bucket, the natural impulse would be to somehow remove assets so that they did not rise above the rim of the bucket—perhaps by placing them into different types of buckets that were not subject to estate tax at all. In a metaphorical sense, that’s what estate tax planning is all about.

Remember, you won’t have to pay any tax on your own estate; your loved ones will. Estate tax planning not only maximizes their inheritance, but it can prevent the forced sale of assets like a family home, farm, or business to meet the tax bill of an estate without much liquidity. Estate tax planning for beneficiaries of estates can also keep family wealth from eroding over generations. Last, but certainly not least, tax planning can reduce the financial and administrative stress on your beneficiaries at a time when they are already grieving.  

Estate Tax Planning Strategies

By now, you should be convinced of the value of estate tax planning, and you may be curious about how best to minimize the tax burden on your beneficiaries. It’s best to work with an experienced estate planning attorney to design a plan for your unique situation, but here are several common strategies.

Lifetime Gifting

As of 2025, an individual can gift up to $19,000 per recipient per year without reducing the amount of the available lifetime exemption. A married couple can double that amount. So, let’s say that you and your spouse have four adult children. Together, you could gift each of them $38,000 per year, removing $152,000 from your estate. 

That amount could go even higher if you choose to make gifts to your children’s spouses, your grandchildren, or others; there’s no limit on the number of gifts you can make to individuals. That said, lifetime gifting is not without risk, especially if your child and their spouse divorce. Once you give assets outright to your child or their spouse, you lose control over what happens to them.

Trusts Designed for Tax Planning

Different trusts achieve different goals. Not all trusts offer an estate tax planning benefit, but many do. For example, an irrevocable life insurance trust, or ILIT, can remove the proceeds of life insurance from a taxable estate. 

A Generation-Skipping Trust, or GST, transfers assets directly to grandchildren, skipping over your children’s generation, which means that the assets don’t become subject to estate tax when they go to your children, and then again when your children pass them on to their own children. While there is a generation-skipping transfer tax, there is also a GST exemption to offset it, in addition to the regular federal estate and gift tax exemption.

For those with charitable intentions, a charitable remainder trust may be a good option. Charitable remainder trusts can be used to benefit both your favorite charities and your beneficiaries while removing assets from your taxable estate.

All of the types of trusts listed above, and others used for tax planning for beneficiaries of estates, are irrevocable, which means that once you put assets in them, you cannot take them back, as you can with a revocable trust.

Freeze the Value of Assets

Assets that can appreciate rapidly, such as real estate and certain investments, can drive up the amount of a taxable estate. Fortunately, there are mechanisms for “freezing” the value of some assets for tax purposes. One is to sell appreciating assets to an intentionally defective grantor trust (IDGT). The current value of the asset remains in your estate, but future appreciation of the asset does not. Another strategy is to transfer a home into a qualified personal residence trust (QPRT); this freezes the value of the home and allows you to remain in the residence.

Contact an Estate Tax Planning Attorney for Guidance

These are only a few of the many estate planning strategies that could be relevant to your estate. If there is any chance that your estate could be exposed to estate tax, you should consult with an experienced estate planning attorney as soon as possible. Otherwise, you could be placing tens or hundreds of thousands of dollars at risk. To learn more about tax planning for beneficiaries of estates, or to get help with estate or gift tax preparation or reporting, contact Estate Planning & Elder Law Services to schedule a consultation.