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.
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.
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.
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.
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.
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.
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:
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.
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:
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.
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.
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.
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.
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.
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.
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.
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:
“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.”
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.
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.
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.
Content Specialist at LegalShield, creating educational resources about legal and consumer protection topics. She focuses on making complex legal and financial concepts accessible to readers and has contributed to various educational articles on consumer rights and protections.
Signing as a POA Agent is more than just jotting down your signature. Banks, title companies, healthcare providers, and similar entities might reject documents if the signature doesn’t clearly show that you’re signing for the other person.
Probate can take time, add costs, and create extra work for loved ones during an already difficult time. That’s why people often want to know how to avoid it.
An executor is always a type of personal representative, but a personal representative isn't always an executor. Learn about the differences and what each does.
A Living Trust lets you decide now what happens to your home, savings, and other assets when you die.
Setting up a Trust creates the container for the assets, and funding it is how the assets actually get into the Trust.
Fiduciary and trustees are similar concepts, but have key differences. A Trustee is a type of fiduciary. Every Trustee is a fiduciary, but not every fiduciary is a Trustee.
Et al. on a deed means there are unnamed co-owners listed on your property title. Learn what it means and how to remove et al from deed paperwork.
A Revocable vs. Irrevocable Trust comes down to one trade-off: control versus protection. Revocable lets you stay in the driver's seat. Irrevocable moves your assets somewhere creditors and estate taxes can't easily reach.
