Dream of Legacy Consulting

Estate planning can be uncomfortable to talk about, but it’s one of the most important steps you can take to protect what you’ve built. It’s the process of organizing your affairs so your assets are handled the way you intend after you’re gone.

Yet, according to a recent Gallup poll, fewer than half of Americans have a will in place, which is only step one of estate planning. That gap leaves many families unprepared and often facing unexpected challenges like the estate tax. If your estate could be subject to those taxes, it’s worth understanding how they work and what you can do now to reduce their impact on your loved ones.

Understanding Estate Taxes

Estate taxes, sometimes called “death taxes,” apply when the total value of a person’s estate exceeds the federal exemption amount. As of 2025, that’s $13.99 million per individual or $27.98 million per married couple. Anything below that threshold isn’t subject to federal estate tax.

Only 13 states; including Massachusetts, New York, and Connecticut impose their own estate taxes. A few, like Maryland, also charge an inheritance tax, meaning the person receiving the asset pays the tax.

Your estate’s executor is responsible for making sure all applicable taxes are paid. Choose that person carefully.

Ways to Minimize Estate Taxes

Here are a few practical approaches to consider if your estate may exceed the exemption limit.

Transfer Assets While You’re Alive

Gifting is one of the most straightforward ways to reduce the taxable value of your estate.
In 2024, you can give up to $18,000 per person (or $36,000 per couple) each year without triggering a gift tax. Gifts beyond that annual limit count toward your lifetime exemption.

If your estate is projected to exceed the federal exemption, gradually transferring assets to loved ones can lower the amount subject to future estate taxes.

Give to Charity Strategically

Charitable trusts allow you to support causes you care about while reducing your estate’s taxable value. Two common options:

• Charitable Lead Trust (CLT): Pays income to a charity for a set time. When that period ends, any remaining assets go to your heirs, potentially at a lower tax cost.
• Charitable Remainder Trust (CRT): Lets you transfer assets like stocks or property—into a trust that pays you income while you’re alive. After your death, the remainder goes to charity.

Because both are irrevocable, changes require agreement from the trust’s beneficiaries, so plan carefully before setting one up.

Use Life Insurance as a Tax Shield

Life insurance proceeds are typically not taxable. But if your estate is named as the beneficiary, those proceeds can be pulled into the estate’s taxable value.

A common workaround is an Irrevocable Life Insurance Trust (ILIT). By placing the policy in a trust, the death benefit passes directly to your beneficiaries and stays outside your estate.

If life insurance is part of your estate plan, act early because premiums increase with age.

If you live in one of the few states with an estate tax, moving could save your heirs a meaningful amount. States like Florida, Texas, and Nevada don’t have estate or inheritance taxes.

It’s worth weighing the tax benefits of relocation against personal factors like proximity to family and cost of living.

Most families won’t owe estate taxes thanks to today’s high exemption limits. But for those with larger estates—or those expecting growth over time—it’s smart to plan early. A mix of gifting, trusts, insurance, and state residency choices can go a long way in protecting what you’ve built for the next generation.