Estate Tax Planning: How to Minimize Taxes and Protect Your Estate
Federal, state, inheritance and gift taxes can all take a bite out of what you leave behind — here's how each works for 2026 and how to plan around them.
Transferring your assets to a beneficiary — whether through gifts during your lifetime or your estate after you pass away — can trigger the federal gift and estate tax once the amount exceeds the exemption. Your total liability depends on where you live and the total value of your estate. In some cases, these taxes can take a chunk out of your estate and limit how much you leave for your heirs.
But with careful estate tax planning, you can reduce your tax liability while ensuring your loved ones are financially protected after you are gone.
What is estate tax planning?
An estate plan allows you to specify your wishes for your assets in the event of your incapacitation or death. It can also specify guardianship or other arrangements for loved ones, such as minor children or adult family members who require special support.
There are four parts to an estate plan, each with its own tax regulations. Some estate plans may also include details concerning funeral wishes.
Living will. A living will allows you to provide advance directives should you experience a serious injury or incapacitation in the future that renders you unable to make decisions.
Will. A will specifies the transfer of your assets after you die and names an executor to carry it out — but a will alone does not avoid probate. Assets left through a will still go through the probate process; it’s tools like a trust that can help your heirs bypass it.
Life insurance. A life insurance policy provides a cash payout to beneficiaries that can cover living expenses, debt or caregiving costs after your death.
Power of attorney. A power of attorney is a person you designate to make medical or financial decisions on your behalf should you become unable to do so yourself.(1)
Law professor and consumer protection attorney Danny Karon says, “having both a will and a trust is essential, not only for your family’s peace of mind after your passing, but also to help guide tax planning with and to minimize estate taxes.”
Assessing your current financial situation
Before you can create your estate plan, you must first gather and review all aspects of your financial life.
Carefully evaluate your financial accounts, including your total assets and debts, to gain a clear picture of your current financial standing. Itemize all sources of income, including your regular employment and any passive income, as well as investment, retirement or rental income, government benefits, alimony or child support.
By creating a strategic estate plan, you can better benefit your beneficiaries in the future. Our estate planning checklist can help you create a comprehensive estate plan that helps protect your loved ones after you are gone.
How taxes affect your estate
Taxes can affect your estate plan in many ways, with estate, inheritance and gift taxes all potentially affecting the total value of your estate. Understanding how each tax is assessed can help you better preserve wealth by minimizing the total tax bill.
Estate tax
An estate tax may be assessed when someone dies and their property is transferred to another party. It generally does not apply to surviving spouses. For some estate plans, both federal and state estate taxes may apply.(2)
Federal estate tax
The IRS does not require most estate plans to file a tax return. However, if you exceed the IRS filing threshold, you will be responsible for filing a return.(3)
For 2026, the federal estate tax threshold is $15 million for individuals and $30 million for married couples filing jointly, up sharply from 2025, thanks to the One Big Beautiful Bill Act.(4) Without that law, the exemption had been scheduled to revert to the pre-2018 level of $5 million per person, adjusted for inflation to an estimated $7 million or so for 2026, before the new law made the higher amount permanent instead.(5)
2024–2026 Federal Estate Tax Thresholds
Individual
Married Filing Jointly
2024
$13,610,000
$27,220,000
2025
$13,990,000
$27,980,000
2026
$15,000,000
$30,000,000
Sources: 2024 figures from the IRS’s tax year 2024 inflation adjustments; 2025 and 2026 figures from the IRS’s tax year 2026 release.(6)(4)
To calculate your gross estate, itemize your assets and their fair market value, which represents their current value and not the initial price paid.(2)
That means if you purchased your home for $1 million, but it is now worth $2 million, you are responsible for paying taxes on the $2 million current value if your state has an applicable estate tax.
If you exceed the annual threshold, you must file IRS Form 706.(3) You will need to pay a base tax rate, as well as the additional marginal rate. The tax rate begins at 18% for estates valued up to $10,000 and increases to 40% for estates worth more than $1 million.(7)
Mario Serralta, CPA, personal injury attorney and founder of Mario Serralta & Associates, says, “Many families assume [the estate tax] won’t pertain to them, but asset values can add up fast when you factor in things like real property, investment accounts, retirement funds and life insurance proceeds. I have known families that inadvertently lost more of that exemption than they knew because they had not kept careful records of their gifts.”
Federal Estate Tax Rates
Tax Rate
Estate Tax Threshold
Estate Tax Rate
18%
$0 to $10,000
18% of taxable amount
20%
$10,001 to $20,000
$1,800 plus 20% of the amount over $10,000
22%
$20,001 to $40,000
$3,800 plus 22% of the amount over $20,000
24%
$40,001 to $60,000
$8,200 plus 24% of the amount over $40,000
26%
$60,001 to $80,000
$13,000 plus 26% of the amount over $60,000
28%
$80,001 to $100,000
$18,200 plus 28% of the amount over $80,000
30%
$100,001 to $150,000
$23,800 plus 30% of the amount over $100,000
32%
$150,001 to $250,000
$38,800 plus 32% of the amount over $150,000
34%
$250,001 to $500,000
$70,800 plus 34% of the amount over $250,000
37%
$500,001 to $750,000
$155,800 plus 37% of the amount over $500,000
39%
$750,001 to $1,000,000
$248,300 plus 39% of the amount over $750,000
40%
$1,000,001 and up
$345,800 plus 40% of the amount over $1,000,000
Source: IRS Form 706 instructions, Table A — Unified Rate Schedule.(7)
State estate tax
Only 12 states and Washington, DC, impose an estate tax. However, there may be an exemption even if you live in these states.
Only estate plans that exceed the state threshold are assessed the estate tax, with limits ranging from $1 million in Oregon to $15 million in Connecticut, which matches the federal exemption.(8) Hawaii and Washington currently share the highest top state estate tax rate at 20% — Washington’s rate was cut from a former high of 35% under a law that took effect July 1, 2026.(9)
Meanwhile, states like California, Texas and Virginia do not have an estate tax.
States with Estate Tax
Maximum Estate Tax Threshold
Estate Tax Rate
Connecticut
$15,000,000
12%
Hawaii
$5,490,000
10%–20%
Illinois
$4,000,000
0.8%–16%
Maine
$7,160,000
8%–12%
Maryland
$5,000,000
0.8%–16%
Massachusetts
$2,000,000
0.8%–16%
Minnesota
$3,000,000
13%–16%
New York
$7,350,000
3.06%–16%
Oregon
$1,000,000
10%–16%
Rhode Island
$1,838,056
0.8%–16%
Vermont
$5,000,000
16%
Washington
$3,000,000
10%–20%
District of Columbia
$4,988,400
11.2%–16%
Source: Tax Foundation, the Connecticut Department of Revenue Services, CreativePlanning and Mercer Advisors.(8)(9)(10)(11) No single federal source compiles all state figures — each state sets its own threshold and rate by statute.
Inheritance tax
The inheritance tax is another important consideration in your tax and estate planning. While there is no federal inheritance tax, several states still assess a tax on qualifying estates. Knowing how to avoid inheritance taxes can be extremely valuable for your estate, depending on where you live.
State inheritance tax
If an estate exceeds a state’s threshold, the beneficiary may owe inheritance tax based on the state where they live. The tax rate depends on their relationship to the deceased, with closer relatives typically paying less — in most of these states, spouses and close family are entirely exempt, while more distant relatives and unrelated beneficiaries face the highest rates.(11)(12)
Surviving spouses, descendants and domestic partners may all be exempt from inheritance tax, depending on the state. Life insurance policies with named beneficiaries are also not generally subject to inheritance tax.
Currently, only five states assess an inheritance tax. Each state’s inheritance tax depends on three factors:
The value of your estate
Your relationship to the deceased
The rates and thresholds for your state
However, policies payable to the deceased or their estate do typically qualify for the inheritance tax.
States with Inheritance Tax
Exemption for Non-Exempt Heirs
Inheritance Tax Rate
Kentucky
Close relatives exempt; $500–$1,000 for others
4%–16%
Maryland
Whole estate exempt under $50,000; close relatives exempt
Flat 10%
Nebraska
$100,000 (close family) down to $25,000 (unrelated)
1%–15%
New Jersey
Spouses/lineal descendants exempt; $25,000 for others
11%–16%
Pennsylvania
Spouses and minor children’s parents exempt
4.5%–15%
Source: CreativePlanning and Tax Foundation state tax data.(11)(12) As with estate tax, no single federal source covers inheritance tax rules — each of these five states sets its own.
Gift tax
You may be responsible for paying a gift tax if you make financial gifts to another party. Like estate and inheritance taxes, there is an annual limit. Any gifts beyond this threshold are eligible for taxation.(13)
Note that these limits are not a part of your lifetime federal gift tax exclusion, and gifts to spouses are exempt.
Gift Tax Annual Exclusion Limits
Individual
Married Filing Jointly
2024
$18,000
$36,000
2025
$19,000
$38,000
2026
$19,000
$38,000
Source: IRS, “Frequently asked questions on gift taxes” — table of annual exclusions by year, covers 2024–2026 directly.(13)
Generation-skipping transfer tax
The generation-skipping transfer (GST) tax is a federal tax that applies to financial gifts made to your grandchildren or other relatives at least two generations younger than you. It also applies to transfers made to trusts and individuals who are not family and are over 37.5 years younger than you.(14)
This tax is additional and separate from your other federal gift and estate tax obligations. Therefore, it carries its own limits and exclusions apart from the normal federal estate and gift tax limits. However, it uses the same rate structure.
Upon transfer of your assets, the GST tax assesses the highest 40% federal estate tax rate. This applies to transfers that exceed the total exclusion amount. Other GST tax exclusions may apply, including any educational, medical or health insurance payments that you made directly to an applicable institution or insurance company.(14)
There is also an annual exclusion limit that applies, totaling $19,000 for 2026. Also applicable is the total allowable lifetime GSTT exemption, which provides limits of $15 million for individuals and $30 million for married couples filing jointly.(4)
2024–2026 Generation-Skipping Transfer Tax Limits
Individual
Married Filing Jointly
Annual Exclusion
2024
$13,610,000
$27,220,000
$18,000
2025
$13,990,000
$27,980,000
$19,000
2026
$15,000,000
$30,000,000
$19,000
Sources: 2024 figures from the IRS’s tax year 2024 inflation adjustments; 2025 and 2026 figures from the IRS’s tax year 2026 release. The GSTT exemption mirrors the federal estate/gift exemption in the same years.(6)(4)
Capital gains tax
You may also be responsible for a capital gains tax.
This tax is only triggered when you sell a taxable investment, such as stocks. It has no bearing on any investments you currently hold in your portfolio. It only applies when you sell an asset.
Your capital gains tax depends on whether it qualifies under the long-term or short-term capital gains tax.
Long-term capital gains tax. Long-term capital gains are assets you have held for at least one year. The tax rate depends on your tax bracket, amounting to either 0%, 15% or 20%.(15) Gains on collectibles hold a higher 28% tax rate.(16)
Short-term capital gains. These investments are held for less than one year and are taxed as ordinary income, so the rate depends on your income tax bracket rather than the more favorable long-term capital gains rate — typically a meaningfully higher rate, especially for high earners in the top ordinary income brackets.
For most estate plans, the long-term capital gains tax applies.
Long-Term Capital Gains Tax Rates (2026)
0% Tax Rate
15% Tax Rate
20% Tax Rate
Single
$0 to $49,450
$49,451 to $545,500
$545,501 and above
Head of Household
$0 to $66,200
$66,201 to $579,600
$579,601 and above
Married Filing Jointly / Surviving Spouse
$0 to $98,900
$98,901 to $613,700
$613,701 and above
Married Filing Separately
$0 to $49,450
$49,451 to $306,850
$306,851 and above
Source: IRS Revenue Procedure 2025-32 (applies to 2026 only — this table does not cover 2024 or 2025 brackets).(15)
Net investment income tax
Some estate plans may be eligible for the net investment income tax (NIIT), which applies to those over the modified adjusted gross income (MAGI) threshold.(17)
Net Investment Income Tax Thresholds
NIIT Threshold
Single
$200,000
Head of Household
$200,000
Married Filing Jointly
$250,000
Married Filing Separately
$125,000
Qualifying Widow/er with dependent child
$200,000
Source: IRS, Questions and Answers on the Net Investment Income Tax. These thresholds are fixed by statute and not inflation-adjusted, so they don’t change by year.(17)
If you exceed these thresholds, there may be an additional 3.8% tax added to your normal capital gains tax rate.(17)
Estate tax strategies
Once you know what estate taxes apply to your estate plan, it is time to think about ways to reduce or eliminate your estate’s tax liability.
“I have clients whose families have benefited from taking such relatively simple steps as making yearly exclusion gifts, moving appreciating assets into irrevocable trusts or using life insurance to provide liquidity so beneficiaries don’t feel forced to sell property,” shares Serralta.
“It is all a numbers game,” he says, “and planning makes a clear difference.”
These strategies can help you reduce your overall tax liability to preserve more of your wealth.
Gift assets within the annual allotment
One way to lower your estate tax is to decrease the size of your taxable estate while you are still living.
The IRS allows you to make gifts, monetary or otherwise, if they are taxable assets paid directly to the recipient. It sets annual limits that are recalculated annually to account for inflation and resets each year, providing more opportunities for gifting.(13)
There are some limitations. For example, gifts to your spouse or a political organization are exempt. The gift also does not apply to educational and medical expenses that you may cover for someone else. If you make any qualifying charitable contributions, those are exempt, too.(13)
2024–2026 Gift Tax
Federal Gift and Estate Tax Exemption Limit
Annual Gift Exclusion
2024
Individual: $13,610,000 Married filing jointly: $27,220,000
Individual: $18,000 Married filing jointly: $36,000
2025
Individual: $13,990,000 Married filing jointly: $27,980,000
Individual: $19,000 Married filing jointly: $38,000
2026
Individual: $15,000,000 Married filing jointly: $30,000,000
Individual: $19,000 Married filing jointly: $38,000
Sources: 2024 figures from the IRS’s tax year 2024 inflation adjustments; 2025 and 2026 figures from the IRS’s tax year 2026 release and gift tax FAQs.(6)(4)(13)
Move assets to a trust
Trusts are a popular tool you can use to minimize estate taxes. They help ensure that your wishes for your estate are carried out after your death. It also helps spare heirs from the expense of probate.
When you establish a trust, you set the terms for its contents, recipients and distribution. In addition to providing security and privacy for your assets, trusts can also be used to receive life insurance proceeds or store funds for future charitable donations. After the assets are moved into the trust, they fall under the control of the designated trustee.
“Having a will can help minimize estate taxes, but a trust goes even further,” Karon shares. “Since trusts remove assets from your estate, they can potentially help reduce estate and income taxes for your beneficiaries and preserve more of your wealth.”
An irrevocable trust is one of the most popular tax strategies for minimizing estate taxes. It creates a permanent home for your assets, keeping them separate from your taxable estate.
“If you put money into an irrevocable trust, that means you’ve relinquished control of that money,” explains Karon. “With this money removed from your estate, it now doesn’t count toward the rest of your assets when it comes to calculating your potential estate taxes.”
Irrevocable trusts cannot be changed once they are finalized, so they may not work for everyone. However, they are not your only option.
Several other types of trusts may benefit your estate.
Revocable trust. Also known as a living trust, a revocable trust is one that can be changed during your lifetime. It allows you to account for major life changes, such as divorce, changes in income or the death of a beneficiary.
Grantor-retained annuity trust (GRAT). The grantor retained annuity trust allows you to receive set payments over a specific period. Any balance after you die can then be left to your heirs without triggering the federal estate and gift tax.(18)
Spousal lifetime access trust (SLAT). A spousal lifetime access trust enables married couples to create a future transfer of assets to their heirs after they are gone. However, if one spouse dies before the other, the surviving spouse still has access to the trust until their death.(19)
Special needs trust. A special needs trust accommodates families with special needs children. With this, adults can leave assets to their heirs without affecting eligibility for need-based government benefits.
With so many options available, it is wise to consult an estate tax planning attorney or tax professional who can advise on the most suitable trust for your estate.
Make donations
One way to reduce your estate tax is to make charitable donations. Donations help reduce the total value of your estate while supporting a cause that matters to you, and depending on how you give, the IRS lets you deduct a meaningful share of your adjusted gross income (AGI).(20)
If you make your donations in cash or via check or wire transfer, you may be eligible for a deduction of up to 60% of your AGI. If you donate long-term appreciated assets in lieu of cash, you could be eligible for an income tax deduction of up to 30% of your AGI.(20)
A qualified charitable distribution (QCD) is a popular way to make donations while also fulfilling your required minimum distributions (RMDs).(21) To do this, you transfer funds from your IRA account directly to an eligible charity.
However you choose to make your donations, you will still likely need to create a charitable trust for tax protection.
Charitable trusts
These allow you to add funds or assets to be distributed to charity after your death. Because these assets are no longer your personal property, they are now exempt from taxes when they pass to your beneficiaries, thus lowering your overall tax burden.
As Managing Director of Lenox Advisors, Brian Kaplan, CFP, has vast experience advising ultra-high-net-worth estates. “I often incorporate advanced charitable strategies to support legacy objectives while significantly reducing taxable income,” he shares. “These structures allow families to transform appreciated assets into long-term philanthropic capital while simultaneously enhancing intergenerational wealth transfer.”
There are a few types of charitable trusts, including charitable remainder trusts (CRTs) that provide income to beneficiaries for a set period.(22) After that, the balance transitions to a charitable donation.
Another option is a donor-advised fund (DAF), which allows you to transfer your assets into an account for potential growth during your lifetime.(23) You can then set up charitable donations to be made either immediately or on a future date.
Tax requirements can vary significantly, depending on whether you donate directly to the charity, through a trust or through a donor-advised fund. Ultimately, the right decision depends on your income requirements, the needs of your beneficiary and your donation timeline. However, it is best to get started as soon as possible.
“I consistently stress the importance of planning early, when income is highest and therefore charitable deductions can be maximized,” says Kaplan. “Implementing these strategies earlier in life also gives charitable trusts and foundations more time to grow, creating greater impact and flexibility.”
Get life insurance
Life insurance doesn’t reduce your income tax bill during your lifetime — premiums aren’t deductible — but the death benefit your beneficiaries receive is generally income tax-free, which makes it a useful estate planning tool.
With a life insurance policy, you can enjoy the peace of mind that comes from knowing that your beneficiaries are protected in your absence. Life insurance also allows you to grow your estate without the usual IRS restrictions.
“Properly designed life insurance can complement these charitable vehicles by replenishing assets given to charity and ensuring heirs remain fully supported,” explains Kaplan.
A lump-sum death benefit is not taxed, preserving more of your wealth. However, if your beneficiaries opt to receive the death benefit in installments, they will likely owe ordinary income tax on the distributions.(24)
The exact tax implications, however, depend on the type of policy you choose, with both term and permanent life insurance available.
Term life insurance. Term insurance is temporary, typically lasting 10 to 30 years. These policies feature a fixed premium and death benefit for a set period.
Permanent life insurance. Permanent insurance, on the other hand, offers lifetime protection that does not expire. However, while it generates cash value over time, it typically carries a higher initial premium than term insurance.
No matter which route you choose to take, you have the option to purchase life insurance directly or through a trust. For example, an irrevocable life insurance trust (ILIT) serves as one way to protect your wealth from federal estate taxes while still providing your heirs with immediate liquidity to fund payouts and any other taxes that may be owed.(25)
Additionally, most life insurance companies will allow you to surrender your life insurance policy for its cash value. While this provides guaranteed liquidity in an emergency, you will still be responsible for paying income tax on any appreciation.
Estate tax compliance
There are a few steps you can take to ensure continued compliance with estate tax requirements.
1. Keep detailed records
Be sure to maintain all documents, statements and contracts relating to your estate. Organize them into files (physical, digital or both) and find secure storage that also allows for easy access.
For greater convenience, enlist the help of a wealth management app, such as those from Range and Wealthfront. They can help guide you through the planning process while providing timely reminders and updates with secure digital storage for your documents.
2. Understand filing requirements
IRS estate taxes generally follow the federal gift and estate tax limits, but other taxes may have their own limits. With rates changing from year to year to account for inflation, you must ensure that you check the current year’s tax rate, as it often increases with each passing year.
Additional state requirements may also apply, making it crucial that you consult a tax and estate planning professional who can help you stay on top of changing requirements.
3. Consult with a professional
With so many different tax types, it can be a challenge to keep track of changing rates, limits and exclusions.
To help, consider consulting tax and estate planning professionals, including an estate attorney, financial advisor and tax professional. Together, these experts can help you determine the best structure and estate tax strategy going forward so you can preserve — and even grow — wealth for your loved ones.
Bottom line
Estate tax planning is often a complex process that requires careful consideration and organization. With several different tax requirements, it can be extremely difficult to determine your overall tax liability. However, with the right understanding, support and tools, you can build wealth faster while securing a lasting legacy and ensuring the future care of your loved ones.
To assist with the estate tax planning process, consider downloading one of the best wealth management apps so you can begin growing your portfolio without the unnecessary taxes.
Frequently asked questions
Also known as the clawback rule, the three-year rule applies to estates that have made gifts or asset transfers within three years of your death. These transfers are considered part of your estate taxes unless you sell the asset to the trust instead of gifting it.(26)
While irrevocable and charitable trusts are popular, the best trust for estate tax depends on individual considerations, such as the type of assets you have, the size of your estate, your beneficiaries and your marital status.
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Matt Miczulski is an investments editor and market analyst at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on Yahoo Finance, CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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