Estate Tax Planning for High-Net-Worth Families

Most families will never owe federal estate tax, since the exemption amount is quite high. But high-net-worth families may face significant estate taxes without careful planning. Understanding how the estate tax works and the strategies available can help you preserve more of your wealth for your heirs and the causes you care about. Laws change, so work with an estate planning attorney and check irs.gov for current details.

How the federal estate tax works

When someone dies, the federal estate tax may apply to the value of their estate above an exemption amount. The taxable estate generally includes everything you own or have certain interests in at death, such as real estate, investments, business interests, retirement accounts, life insurance proceeds if you own the policy and other assets, minus certain deductions, such as debts, expenses and charitable bequests.

The exemption was $13.99 million per person in 2025, and a law passed in 2025 set it at $15 million per person starting in 2026, indexed for inflation in later years. Amounts above the exemption can be taxed at rates up to 40%.

The estate tax exemption is unified with the lifetime gift tax exemption, meaning large gifts made during your lifetime reduce the exemption available at death.

Married couples

Assets left to a surviving spouse who is a U.S. citizen generally pass free of estate tax because of the unlimited marital deduction. This allows couples to defer estate taxes until the death of the second spouse. Special rules apply when a surviving spouse isn’t a U.S. citizen, such as using a qualified domestic trust.

Portability can let a surviving spouse use the deceased spouse’s unused exemption amount, effectively allowing a married couple to shield up to twice the individual exemption from estate tax. However, portability generally requires filing an estate tax return, Form 706, after the first spouse’s death, even if no tax is owed. Missing this filing can mean losing the unused exemption, which could be costly for the surviving spouse’s estate.

State estate and inheritance taxes

Some states and Washington, D.C., have their own estate taxes, and a few have inheritance taxes, which are paid by heirs based on what they receive and their relationship to the deceased. State exemption thresholds are often much lower than the federal exemption, so families who don’t owe federal estate tax may still owe state estate tax.

State rules vary significantly, and some states have both estate and inheritance taxes. Where you live, and where your property is located, can affect your estate tax exposure.

Common estate tax planning strategies

Lifetime gifts can reduce your taxable estate. Annual exclusion gifts let you give up to a set amount per recipient each year without using your lifetime exemption. Direct payments of tuition and medical expenses for others don’t count as gifts. Larger lifetime gifts use your exemption but remove future appreciation from your estate.

Irrevocable trusts can remove assets from your estate. Various types of trusts can help, such as grantor retained annuity trusts, which transfer asset growth to heirs; intentionally defective grantor trusts, which can freeze estate values while you pay the trust’s income taxes; spousal lifetime access trusts, which remove assets from your estate while providing indirect access through your spouse; and dynasty trusts, which can benefit multiple generations while minimizing transfer taxes.

Charitable giving and charitable trusts can reduce estate taxes while supporting causes you care about. Charitable bequests are fully deductible from your estate. Charitable remainder trusts and charitable lead trusts can provide income and tax benefits.

Life insurance held in an irrevocable life insurance trust, known as an ILIT, can provide liquidity to pay estate taxes or provide for heirs without the proceeds being included in your taxable estate, if structured properly.

Family limited partnerships or LLCs can help transfer interests in family businesses or investment assets to heirs, potentially at discounted values for gift and estate tax purposes due to lack of control and marketability. These strategies are subject to IRS scrutiny and must be structured carefully.

Planning for flexibility

Estate tax laws have changed many times and may change again. Building flexibility into your estate plan, such as through provisions that allow trustees or beneficiaries to adapt to changing laws, can help your plan remain effective.

Don’t forget the basics

Estate planning isn’t only about taxes. Wills, trusts, beneficiary designations, powers of attorney and health care directives matter for every family, regardless of size. These documents ensure your assets go where you want, name guardians for minor children, designate people to manage your affairs if you become incapacitated and communicate your health care wishes.

Review beneficiary designations on retirement accounts and life insurance regularly, since they generally override your will.

Get expert help

Estate planning for large estates is complex, involving tax law, trust law and family considerations. Work with an experienced estate planning attorney and tax adviser to create a plan that minimizes taxes, reflects your values and provides for your loved ones. Review your plan regularly, especially after major life events or changes in tax law.