Estate planning is often focused on determining who will receive property and how assets should be managed after death. For families with significant assets, considering the potential tax consequences can also be an important part of the planning process.
A plan that works well under current federal and state exemption amounts may produce a different result if tax laws change or if an estate becomes subject to state-level taxation.
Families with substantial assets should consider both the current rules and the possibility of future changes. The goal is not necessarily to restructure an estate in response to every proposed tax change, but to understand where changes in the law could affect the plan.
Federal and State Estate Taxes Are Different
Federal estate tax applies only when an estate exceeds the applicable federal exemption amount. That exemption has changed significantly over time.
State estate and inheritance taxes operate separately, and some states impose taxes at substantially lower thresholds than the federal government.
As a result, an estate may have no federal estate tax liability but still face state estate or inheritance taxes. The analysis may depend on where a person is domiciled, where real estate is located, and how assets are owned.
For families with significant wealth, identifying potential state tax exposure can be especially important when considering a move to another state or owning property in multiple jurisdictions.
Estate Tax Exemptions Can Change
Estate tax planning becomes more complicated when lawmakers change exemption amounts, tax rates, or other tax provisions. A plan designed around today’s rules may need to be reconsidered if the tax environment changes.
This does not mean that every estate requires a complex tax strategy. The appropriate approach depends on the size and composition of the estate, the family’s objectives, and the laws that apply to the assets and beneficiaries.
Periodic reviews can help determine whether an existing estate plan continues to accomplish its intended purpose.
Consider the Entire Estate
Calculating potential estate tax exposure involves more than reviewing checking, savings, or investment accounts.
Real estate, closely held business interests, retirement accounts, life insurance proceeds, investment assets, and other property may all be relevant when determining the value of an estate for estate tax purposes.
Ownership is also important. Assets held jointly, transferred to trusts, or given away during life may receive different tax treatment depending on the particular circumstances.
Families should therefore review their overall financial picture rather than considering individual assets in isolation. For example, an increase in the value of a business, real estate holding, or investment portfolio could significantly increase potential estate tax exposure even though the estate planning documents themselves have not changed.
Lifetime Gifting May Be Part of the Strategy
Lifetime gifting can be an important estate planning technique, particularly when a person wishes to transfer assets during life or remove future appreciation from a taxable estate.
However, gifts can have their own tax and legal consequences. Transferring an appreciated asset during life may affect the recipient’s income tax basis, the donor’s financial security, eligibility for certain government benefits, and the overall estate plan.
For that reason, lifetime gifts should generally be coordinated with a person’s broader financial, tax, and estate planning objectives rather than made solely because a particular tax rule appears favorable.
Do Not Let a Tax Deadline Drive the Entire Estate Plan
Changes in tax law can create a sense of urgency, particularly when an exemption amount or other favorable provision is scheduled to change.
Estate planning, however, involves much more than minimizing taxes.
A comprehensive plan should also address incapacity, family circumstances, charitable intentions, asset management, creditor concerns where appropriate, and how and when beneficiaries will receive their inheritance.
A tax-efficient arrangement that does not support the family’s broader objectives may ultimately fail to accomplish what the client intended.
Ideally, these issues should be addressed before a tax deadline or major life event requires a rushed decision.
Review the Estate Plan as Laws and Circumstances Change
Tax uncertainty is one reason estate plans should not be viewed as permanent documents.
Changes in federal or state law may justify a review, as can changes in family circumstances, wealth, residence, business ownership, or the nature and value of a person’s assets.
Periodic reviews allow families to determine which provisions genuinely need to change and which remain appropriate. They also provide an opportunity to coordinate wills, trusts, beneficiary designations, insurance, and asset ownership.
If you would like to review your estate plan, reach out to my law office at: estateattorneycpa.com
Key Takeaways
- Look beyond federal estate taxes. State estate and inheritance taxes may apply at substantially different thresholds and can affect families that have no federal estate tax liability.
- Monitor changing exemption amounts. Federal and state tax rules can change, making periodic reviews particularly important for larger estates.
- Consider the entire estate. Real estate, businesses, retirement accounts, insurance, and investment assets can all affect potential estate tax exposure.
- Evaluate lifetime gifts carefully. Gifting can reduce an estate or shift future appreciation, but it may also create income tax, basis, financial, and other planning consequences.
- Keep taxes in perspective. Tax planning should support, rather than override, broader estate planning goals involving inheritance, incapacity, family needs, and asset management.
Reference: USA Today, February 25, 2026, “Don’t go over the tax cliff. State estate tax may kill inheritances.”
Key Takeaways
- Estate planning should consider both federal and state tax implications, as these can differ significantly.
- Families with substantial assets must regularly review their plans due to changing tax laws and exemption amounts.
- Evaluating the entire estate, including real estate and business interests, is crucial for understanding tax exposure.
- Lifetime gifting can be beneficial, but it may bring tax and legal complexities that families should carefully assess.
- Effective estate planning requires balancing tax efficiency with broader family objectives and circumstances.
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