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 component that shouldn't be overlooked. Proper planning ensures your hard-earned assets are protected and transferred smoothly to your loved ones without unnecessary tax burdens.

We asked Craig Tarpinian, a LegalShield provider lawyer with Powers Chapman in Michigan, to offer his insight on this topic. He contributed some essential information to help lay out the basics of this complex topic.

Craig starts out with a warning: "Obviously, if you do not plan for the wealth you have, you will have to pay a hefty tax.” So let’s find out what you can do to plan for the future of your finances—including your taxes!

What is estate tax planning?

Estate tax planning involves legal strategies to minimize taxes on your estate when transferring wealth to your heirs. Without proper estate tax planning, a significant portion of your assets could go to the government instead of your beneficiaries.

Estate taxes are imposed taxes on the transfer of assets after death. Unlike income taxes that you pay throughout your lifetime, estate taxes are paid by your estate before assets are distributed to beneficiaries. In some states, heirs may also face inheritance taxes on what they receive. State laws can vary so you should seek advice and assistance from an attorney in the appropriate state.

"In the state of Michigan, there is no inheritance tax or state estate tax. However, there is a Federal Estate Tax. An estate tax return (IRS 706) is required to be filed when the total value of the decedent's estate exceeds the federal tax exemption," notes Craig.

Who needs estate planning and taxation guidance? While federal exemptions are high, many individuals still benefit from proactive planning:

"The current exemption is $13,990,000. If you exceed this amount, then you will have to pay tax. This amount is due to sunset through Congress, so the amount in 2026 will be different," explains Craig Tarpinian.

People who would benefit from estate tax planning include:

• Business owners with valuable company assets
• Real estate investors with substantial property holdings
• Individuals with significant investment portfolios
• Anyone concerned with multi-generational wealth preservation
• Residents of states with lower estate tax exemption thresholds

"The current rates for taxes that exceed the exemption is from 18% to 40%," adds Tarpinian, highlighting the potential financial impact of insufficient planning.

Smart estate tax planning strategies

Utilizing exemptions and exclusions

One of the foundations of inheritance tax planning advice is maximizing available exemptions:

• ‍Federal estate tax exemption: This is the total amount of gifts that you can give to others upon the event of your death, without owing federal estate tax on those gifts.
• ‍Annual gift tax exclusion: This is the total amount of gifts that you can give away each year without having to pay any taxes on those gifts.
• ‍Lifetime gift tax exemption: This is strategic gifting during your lifetime that can reduce your taxable estate.

Married couples can "split" gifts.

Establishing trusts for tax efficiency

Trusts are powerful estate tax planning strategies that can significantly reduce tax liability.

"Ways you can reduce the tax are by setting up an irrevocable trust or preparing an irrevocable life insurance trust," recommends Craig Tarpinian.

Consider these trust options:

• ‍Revocable living trusts: While not providing direct tax benefits, they help avoid probate and maintain privacy.
• ‍Irrevocable trusts: These remove assets from your taxable estate while maintaining control over how they're used.
• ‍Grantor Retained Annuity Trusts (GRATs): These transfer appreciation on assets to beneficiaries with minimal gift tax consequences.
• ‍Charitable Remainder Trusts (CRTs): These generate income for yourself while earmarking assets for charity and receiving tax benefits.
• ‍Dynasty trusts: These preserve wealth for multiple generations while minimizing estate taxes.

Life insurance as an estate planning tool

Life insurance plays a crucial role in inheritance tax planning. Insurance proceeds are generally income tax-free to beneficiaries. Consider an irrevocable life insurance trust (ILIT) to help shield proceeds from estate taxes. Insurance policies can provide liquidity to pay estate taxes without forcing the sale of other assets. Another type of insurance policy is the second-to-die policy, which can offer cost-effective coverage for married couples.

Advanced techniques for minimizing estate taxes

Charitable giving and philanthropy

Integrating philanthropy into your estate planning and taxation strategy offers multiple benefits.

"This is a tax that is usually for the wealthy. Ways you can reduce the tax are by charitable giving," notes Craig Tarpinian, highlighting one of the most effective ways to reduce your estate tax burden.

Consider these charitable strategies:

• ‍Direct bequests to qualified charities reduce your taxable estate.
• ‍Donor-Advised Funds (DAFs) allow for immediate tax deductions while distributing funds to charities over time.
• ‍Charitable lead trusts provide income to charities for a period before assets pass to your heirs.
• ‍Charitable remainder trusts provide you with income while earmarking the remainder for charity.

Family Limited Partnerships (FLPs)

FLPs are particularly valuable for family businesses and real estate:

• Transfer business interests to a partnership structure.
• Gift limited partnership interests to family members at discounted valuations.
• Maintain control through the general partner interest while reducing your taxable estate.
• Create a framework for business succession planning.

Portability and marital deduction strategies

Married couples have additional estate tax planning strategies. An unlimited marital deduction allows for the transfer of unlimited assets to your spouse, tax-free. Portability allows a surviving spouse to use the deceased spouse’s unused exemption amount. You could also consider a bypass trust, which helps to preserve the deceased spouse’s exemption while providing for the surviving spouse. A qualified terminable interest property trust (QTIP) provides for a spouse while ensuring assets ultimately pass to children from a previous marriage.

Common pitfalls in estate tax planning

Even well-intentioned estate plans can fall short if you:

• ‍Fail to update your plan when tax laws change.
• ‍Overlook state estate taxes, which often have lower exemption thresholds.
• Improperly title assets or designate beneficiaries.
• ‍Neglect to coordinate retirement accounts with your overall estate plan.
• ‍Wait too long to implement appropriate strategies.

How LegalShield provides access to help with estate planning

Navigating the complexities of estate tax planning requires professional guidance. LegalShield provides affordable legal access to help you develop and implement effective estate tax planning strategies.

LegalShield provider law firms can:

• Review existing estate planning documents
• Schedule consultations to discuss your specific situation
• Answer legal questions about inheritance tax planning
• Draft or update Wills, Trusts, and other estate planning documents
• Provide ongoing support as tax laws and your circumstances change

LegalShield provider firms can help connect you with a provider attorney  when required for complex estate tax situations.

Estate planning isn't a one-time event but an ongoing process that requires regular review and updates. With LegalShield, you gain access to qualified attorneys who can help ensure your estate plan remains effective and legally compliant without the high hourly rates typically associated with estate planning attorneys.

Take action today

Don't leave your legacy to chance. Proper estate planning and taxation strategies can save your heirs  unnecessary taxes while ensuring your wishes are carried out.

Contact LegalShield today to learn how affordable legal plans can help you implement effective estate tax planning solutions tailored to your unique situation.

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Written by Elyse Dillard, Content Specialist at LegalShield. Elyse creates educational resources about legal and identity theft protection services. She works to make complex legal concepts more accessible to readers and has contributed to numerous articles on the LegalShield blog.

Mr. Tarpinian was born in Detroit, Michigan. He received his Bachelor of Arts Degree from Michigan State University in East Lansing, Michigan. He received his Juris Doctorate from the Thomas Cooley Law School in Lansing. Mr. Tarpinian is currently an Adjunct Assistant Professor at Madonna University in Livonia. He is a former Adjunct Professor at Oakland Community College. Mr. Tarpinian is a Licensed Michigan Real Estate Agent and was a Past President of the Armenian-American Bar Association. He is the recipient of a Distinguished Service Certificate from the 60 Plus Law Center in Lansing, Michigan.

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