Tax season arrives like clockwork each year, but estate tax planning stretches far beyond annual returns. While 68% of Americans lack a proper estate plan, even fewer understand the tax implications their legacy could face. The difference between proper planning and procrastination might mean hundreds of thousands in unnecessary taxes paid by your loved ones.

Estate tax planning operates in a constantly shifting landscape of regulations, exemptions, and opportunities. With the current estate tax exemption set to potentially change in 2026, understanding how to leverage available tax advantages has never been more crucial for preserving your family’s financial future.

Understanding the Current Estate Tax Landscape

The foundation of effective estate tax planning begins with understanding where we stand today. The federal estate tax exemption currently allows individuals to pass on substantial wealth without federal estate tax implications. However, this generous exemption level might change, making it vital to understand both current opportunities and potential future scenarios.

State estate taxes could also impact your planning. Some states impose their own estate or inheritance taxes, often with lower exemption thresholds than federal limits. A comprehensive estate plan might need to account for both federal and state tax implications, especially if you own property in multiple states.

Gifting Strategies That Could Reduce Your Estate Tax Burden

Annual gifting presents one of the most straightforward ways to reduce potential estate tax exposure. The annual gift tax exclusion allows individuals to give up to a certain amount per person each year without tax implications ($19k per person in 2025). A married couple could potentially double this amount through gift splitting.

Beyond basic annual gifts, education and medical expense payments made directly to institutions don’t count against gift tax limits. This provision could help grandparents support younger generations’ education while reducing their taxable estate. However, the timing and documentation of these payments typically need careful attention to ensure they qualify for the exclusion.

Trust Structures for Tax Efficiency

Various trust structures can offer different tax advantages:

• Irrevocable Life Insurance Trust (ILIT)

Life insurance proceeds, while income-tax-free to beneficiaries, typically count toward your taxable estate. An ILIT could help keep these proceeds outside your estate while providing liquidity for estate taxes or other needs.

• Charitable Remainder Trust

This structure might offer current income tax benefits while reducing estate tax exposure and supporting your charitable goals. The trust typically provides income during your lifetime, with the remainder going to your chosen charity at your death.

Business Succession and Estate Tax Planning

Business owners face unique estate tax challenges. The value of a business could push an estate over tax thresholds, yet liquid assets to pay those taxes might be limited. Several strategies could help:

• Family limited partnerships might offer opportunities to transfer business interests while maintaining control and potentially qualifying for valuation discounts. However, these structures require careful setup and maintenance to achieve desired tax benefits.
• Buy-sell agreements, properly structured and funded, could provide liquidity while potentially establishing business value for estate tax purposes. The timing and terms of these agreements often benefit from regular review and updates.

Retirement Account Management

Retirement accounts intersect with estate planning in complex ways. Traditional IRA and 401(k) accounts could create significant income tax liability for heirs, while Roth accounts can offer tax-free inheritance benefits. Converting traditional accounts to Roth accounts could reduce your taxable estate while providing tax advantages for beneficiaries.

Real Estate Considerations

Real estate holdings often represent significant estate value. Various ownership structures might offer tax advantages:

• Qualified Personal Residence Trusts could help transfer primary residences or vacation homes to the next generation with potential gift tax savings. The timing and terms of these trusts typically need careful consideration to maximize benefits.
• Like-kind exchanges during life might help manage income taxes while positioning properties for eventual estate transfer. However,  fully understanding the opportunities provided by step-up in tax basis could affect the overall tax efficiency of different strategies.

Regular Review and Adjustment

Estate tax planning isn’t a one-time event. Changes in tax laws, family circumstances, and asset values might affect the efficiency of existing strategies. Regular reviews could help ensure your plan continues to align with current laws and family goals.

Work With Us

Estate tax planning requires a delicate balance between current tax efficiency and future flexibility. Understanding available strategies represents just the first step – implementing them effectively within your overall financial plan often makes the difference between success and missed opportunities. The key lies in creating a coordinated approach that addresses both immediate tax concerns and long-term legacy goals.

At Brogan Financial, we specialize in helping families navigate the complexities of estate tax planning. Our team works closely with your legal and tax advisors to develop comprehensive strategies that protect your legacy while maximizing tax advantages. Let’s explore how we can help preserve more of your hard-earned wealth for future generations. Contact us today for a consultation, and don’t forget to catch ‘More Living with Jim Brogan‘ every Saturday morning at 9 on 98.7 FM WOKI for weekly financial insights.