Estate Tax Planning: Strategies to Reduce Your Tax Burden

Editor's note: This post was originally published March 31, 2023, and has been updated for accuracy, comprehensiveness and freshness on May 15, 2025.

When it comes to preserving your wealth for future generations, estate tax planning is a critical part of any comprehensive financial strategy. If your estate is large enough, you might face federal estate taxes, and many states levy their own taxes, too. Fortunately, with the right strategies in place, you can work to reduce the tax burden and ensure that more of your wealth passes to your heirs.

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Here’s what you need to know about estate taxes, the strategies available to minimize them, and how a LegalShield attorney can help you navigate this complex area of law.

What Are Estate Taxes?

Estate taxes are levied on the value of your estate (your total assets) when you pass away. Often called a “death tax,” the federal government imposes estate taxes on estates above a certain value, and some states have their own estate or inheritance taxes.

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For 2025, the federal estate tax exemption is $13.99 million per individual ($27.98 million for married couples). That means if your estate is below this threshold, you won’t owe federal estate taxes. However, the current high exemption is set to expire at the end of 2025, when it will roughly halve unless Congress acts to extend it. That makes this a particularly important time to plan ahead.

Federal Estate Tax vs. State Estate Tax

The federal estate tax affects only a small percentage of estates because of the high exemption. However, many states have lower exemption thresholds and their own estate taxes. For example, Oregon and Massachusetts have lower estate tax exemptions, so even smaller estates may face state-level taxes in those states.

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Some states don’t have an estate tax but do have an inheritance tax, which is paid by the people who receive the assets rather than the estate itself. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania all have inheritance taxes.

Estate Tax Planning Strategies

Even if your estate is currently below the federal exemption limit, there are good reasons to plan ahead. Here are some common estate tax planning strategies:

1. Use the Annual Gift Tax Exclusion

One of the simplest ways to reduce the size of your taxable estate is to make gifts during your lifetime. In 2025, you can give up to $19,000 per person per year without triggering the gift tax. Over time, these annual exclusion gifts can significantly reduce the value of your estate.

2. Establish a Trust

Trusts are powerful tools in estate planning because they can help minimize estate taxes while also protecting assets. Common types of trusts used in estate tax planning include:

• Irrevocable Life Insurance Trust (ILIT): This trust holds a life insurance policy, so the proceeds are not included in your taxable estate.
• Grantor Retained Annuity Trust (GRAT): A GRAT allows you to transfer assets out of your estate while retaining an annuity payment for a set period. If the assets appreciate faster than the IRS-assumed growth rate, the excess passes tax-free to your heirs.
• Charitable Remainder Trust (CRT): This allows you to donate assets to charity while still receiving income, and the charitable portion isn’t subject to estate taxes.

3. Consider a Family Limited Partnership (FLP) or Family LLC

An FLP or family LLC allows you to transfer business or investment assets to family members while retaining some control. These structures can also provide valuation discounts, reducing the taxable value of the transferred assets.

4. Make Charitable Contributions

Charitable donations can reduce your taxable estate because they are generally deducted from the estate’s value for tax purposes. You can donate assets to a charity, a donor-advised fund, or set up a charitable trust during your lifetime or through your estate plan.

5. Use the Marital Deduction

If you’re married, you can transfer an unlimited amount of assets to your spouse without incurring estate taxes (assuming your spouse is a U.S. citizen). This is known as the unlimited marital deduction. Combined with portability (the ability for a surviving spouse to use the deceased spouse’s unused exemption), married couples can effectively double the estate tax exemption.

6. Use Portability

Speaking of portability, if the first spouse to die doesn’t use their entire exemption, the surviving spouse can “port” the unused portion to increase their own exemption. But there’s a catch: portability must be elected on the deceased spouse’s estate tax return, even if no tax is owed. That makes timely estate planning critical, even for smaller estates.

7. Consider Paying Down Debts

Debts reduce the value of your estate (and therefore potential estate taxes). If you have outstanding debts, paying them down can help reduce your taxable estate.

8. Life Insurance

Life insurance proceeds are generally income-tax-free to beneficiaries. However, if you own the policy, the death benefit is included in your taxable estate. Moving a life insurance policy into an irrevocable life insurance trust (ILIT) removes the policy from your estate and can allow you to provide tax-free money to your heirs.

When to Start Estate Tax Planning

The earlier you start estate tax planning, the more flexibility you have. However, it’s especially important to act now because the current elevated estate tax exemption of $13.99 million is set to expire at the end of 2025. If Congress doesn’t act, the exemption could drop to roughly $7 million per person. That means many more estates will potentially be subject to federal estate taxes.

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We asked Craig Tarpinian, a LegalShield provider lawyer with Powers Chapman in Michigan, to offer his insights on estate tax planning. Here’s what he had to say:

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“My advice to clients is that when it comes to estate planning, a proactive approach is far better than a reactive one. As the law evolves, especially with the current exemption sunset provision, it’s crucial to have a solid estate plan in place. Early planning not only helps protect your assets from potential tax liabilities but also ensures that your wishes are clearly expressed and legally binding.”

How LegalShield Can Help

Estate tax planning can be complex. A qualified estate planning attorney can help you analyze your estate and identify the most appropriate tax-minimization strategies for your situation. A LegalShield membership gives you access to experienced provider lawyers who can guide you through the estate planning process.

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From creating trusts to reviewing your will and beneficiary designations, LegalShield can help make sure your estate plan is in order. If you’re concerned about estate taxes, consider reaching out to a LegalShield attorney to discuss your options today.

Disclaimer

This content is for informational purposes only and should not be construed as legal advice. Every situation is unique, and you should consult with a qualified attorney for advice tailored to your specific circumstances.