Estate tax planning: Strategies for passing on your wealth

Like many Americans, you may be considering passing on your hard-earned wealth to those you care about. It's a beautiful way to show your love and help your heirs step into a new chapter of financial stability.

But there's more to this process than just updating a few account names. Your estate may be subject to taxes on the assets transferred after your passing, potentially lowering the amount your loved ones ultimately receive.

The good news is that you can minimize the impact of estate taxes with proactive planning strategies. The first step is understanding the nuances of how taxes fit into wealth transfer strategies to use them to your advantage, whether upon your death or during your lifetime.

Thoughtful estate tax planning today can make a meaningful difference in what you’re able to pass on tomorrow. Here’s what to know as you begin the process.

Your estate will consist of all your money and all the property you own or co-own at the time of your death. It could include your cash, securities, home, insurance, works of art and business interests.

You can use certain deductions to shrink the size of your taxable estate.

These include:

• Funeral expenses paid out of the estate.
• Debts owed at the time of death, including mortgages.
• The marital deduction, which is generally the value of the property that passes to the surviving spouse.
• The state death tax deduction. Note that a minority of U.S. states levy their own estate taxes, and the threshold to trigger these taxes may be lower than the federal threshold.
• The charitable deduction, which generally includes the value of the property that goes from the estate to a qualifying charity.

The value of your taxable estate will determine if you pay estate tax. Note that word "if." Unlike death, the estate tax isn't inevitable. In fact, most estates don't pay estate tax.

You qualify for the federal estate tax exemption if the total value of your estate is below the federal exemption amount. For 2026, the exemption (also called the basic exclusion amount) is $15 million per person. That means only estates worth more than $15 million are subject to federal estate tax.

For married couples, the exemption is effectively $30 million in 2026, because any unused exemption from one spouse can be transferred to the surviving spouse with the proper documentation.

The basic exclusion amount is indexed for inflation, so it could increase in 2027 and each year thereafter. The One Big Beautiful Bill Act (OBBBA), passed in 2025, made the increased exemption amount “permanent,” so it’s not scheduled to end. However, “permanent” is a relative term in the tax code, so future changes in tax law could affect it.

The federal estate tax has a top rate of 40%. This rate applies only to the portion of an estate’s value that exceeds the federal estate tax exemption.

Giving assets during your lifetime is another effective way to help reduce the size of your taxable estate. This estate tax planning strategy not only has financial benefits, it can also be deeply rewarding. You’re able to see your loved ones enjoy the gift—whether it helps them pursue an education, buy a home, or start a business.

Transfers of wealth you make during your lifetime may be subject to gift tax at the federal level and, in some states, at the state level. However, many gifts are exempt from federal gift tax.

• Gifts to a spouse who is a U.S. citizen
• Tuition or medical expenses paid directly to a school or medical provider on someone's behalf
• Gifts to a political organization
• Gifts to qualifying charities

This exclusion allows you to give up to $19,000 per recipient in 2026 without triggering federal gift tax.

For example, if you have five children, you can give each of them up to $19,000 in 2026 tax-free. If you’re married, you and your spouse can combine your exclusions and give up to $38,000 per person in 2026.

If you give someone more than the annual exclusion amount in a year, you’ll need to file a gift tax return. But that doesn’t mean you’ll owe taxes.

That’s because the federal lifetime gift and estate tax exclusion also applies to gifts made during your lifetime. Any amount you give above the annual limit simply reduces your remaining lifetime exclusion. As long as you haven’t used up that exclusion, you still won’t owe federal gift tax.

If your gifts stay within the annual limit for each recipient, your lifetime exclusion isn’t affected at all.

The basic exclusion is linked to one more type of transfer: the generation-skipping transfer. It pertains to assets you give to someone two or more generations below you, such as your grandchildren, during your lifetime or after you die.

Since GST tax rules can be especially complex, consider working with a tax professional who can help you design a thoughtful estate tax planning strategy that includes GSTs.

Some assets trigger capital gains taxes when you sell them for more than the price you paid, which is called the cost basis. These can include stocks, bonds, mutual funds and real estate.

Giving appreciated assets while you’re alive can shrink your taxable estate. If you donate them to a charity, you can avoid capital‑gains on the appreciation; if you give them to family, the tax isn’t avoided—it’s passed along via your cost basis and may be due when they sell. 

Alternatively, if you wait to pass on those assets upon your death, your heirs could receive a capital gains benefit if the assets aren't held in a tax-deferred vehicle like an individual retirement account. It should, however, be noted that gifts given during the owner's lifetime take original owner's tax basis which could result in a higher tax liability than gifts given at time of death.

Thanks to what's known as a "step-up in basis," the inherited asset's unrealized capital gains will effectively vanish because the cost basis generally resets to the asset's value upon the date of death. Only subsequent price appreciation could result in a capital gain.

One downside to this approach is that the assets would be included in your taxable estate, which could get tricky if your estate's value is nearing the basic exclusion amount.

Another effective estate tax planning strategy is transferring assets into irrevocable trusts to remove them from your taxable estate and secure long-term wealth preservation.

Not only will the assets in your trust live outside of your estate, but they can also help you accomplish other goals. These include funding legacies for children or grandchildren, making gifts of property or life insurance and supporting causes that are important to you.

Transferring assets to loved ones and structuring charitable gifts in beneficial and tax-friendly ways requires an exhaustive knowledge of the tax code as well as legal and financial expertise.

In addition to working with an estate planning attorney and tax professional, connect with a financial advisor for a personalized look at your unique situation and guidance around how your assets can make the biggest impact possible both before and after your passing.