Inheritance and Estate Taxes: How to Protect Your Legacy

How to Minimize Inheritance and Transfer Taxes

• Annual gifting: Use the annual exclusion to transfer wealth tax-free: up to $19,000 per recipient in 2025 ($38,000 per couple).
• Irrevocable life insurance trusts (ILITs): Place life insurance policies inside an ILIT to keep proceeds outside your taxable estate.
• Charitable giving: Tools like donor-advised funds and charitable remainder trusts can reduce taxable estates while advancing philanthropic goals.
• Portability of estate tax exemption: Married couples can combine exemptions through portability — potentially shielding $27.8 M in 2025.
• Trust-based planning: Trusts such as spousal lifetime access trusts (SLATs) or grantor retained annuity trusts (GRATs) can help manage future estate tax exposure and control asset distribution.

What Is the Federal Estate Tax Exemption?

In 2025, the federal estate tax exemption is $13.9 million per person (or $27.8 million for married couples using portability).

Planning Implications (2025 – 2026 Window)

High-net-worth families have limited time to:

• Use today’s lifetime exemption through strategic gifting.
• Establish spousal lifetime access trusts (SLATs) or other trusts for flexibility.
• Review estate documents for post-2025 rule alignment.

Why State Tax Laws Still Matter

Even with generous federal exemptions, state-level estate or inheritance taxes can create unexpected liabilities — particularly for families with assets or heirs in multiple states.

1. State Thresholds Can Be Far Lower

• Federal: $13.9 M per person (2025)
• Oregon and Massachusetts: $1 M
• New York, Illinois, Washington: $2 – $6 M
• Result: A household below the federal limit may still trigger state-level taxes.

2. Residency and Property Location Matter

• Primary residence: Determines domicile for estate tax purposes.
• Out-of-state real estate: May be taxable in the property’s jurisdiction.
• Beneficiary’s relationship: Drives inheritance-tax exposure in some states (e.g., PA, MD).

3. Multi-State Planning: Complexity & Opportunity

• Review domicile: States like Florida, Texas, or Nevada levy no estate/inheritance taxes.
• Titling & situs management: Holding property in trusts or entities can centralize taxation.
• Professional collaboration: Align strategies among attorneys, CPAs, and financial advisors.
• Monitor updates: State thresholds shift frequently — review annually.

Multi-Jurisdictional Planning in Practice

For families with property or heirs in several states, a coordinated plan can:

• Prevent double taxation.
• Optimize the timing of gifts and transfers.
• Adapt as residency or assets change.

The Importance of Professional Advice

Estate, gift, and inheritance taxes sit at the intersection of law, finance, and family. Even small changes in residency or ownership can carry big implications.

A well-rounded team should include:

• Estate-planning attorneys: Ensure wills, trusts, and powers of attorney (POAs) meet goals and laws.
• Tax professionals (CPAs/enrolled agents): Calculate liabilities and identify deductions.
• Financial advisors: Integrate tax strategies with investment, charitable, and retirement goals.

Together, they help align your estate plan with evolving tax laws, protect assets, and preserve family harmony.

The Power of Open Family Conversations

Estate planning is technical — but also deeply personal. Transparent discussions can:

• Clarify intentions and family values.
• Reduce conflicts or surprises among heirs.
• Prepare beneficiaries for financial responsibilities.
• Build trust across generations.

Next Steps to Strengthen Your Plan

1. Take inventory – List key assets, accounts, and properties across all states.
2. Evaluate exposure – Compare your estate’s size with both federal and state thresholds.
3. Consult your team – Meet jointly with your attorney, CPA, and advisor to explore trusts, gifting, or relocation strategies.
4. Revisit regularly – Update every 2–3 years or after major life events. Confirm beneficiary designations across all accounts.

Key Takeaways

The tax landscape changes — your estate plan should too. Proactive, collaborative planning not only helps to safeguard wealth but also strengthens family communication and ensures your legacy reflects your values.

An LPL Financial advisor can help coordinate your estate, tax, and investment strategies so your wealth transfer plan supports both your goals and your loved ones’ futures.