Gallup's 2021 poll found that only 46% of U.S. adults have a will. Having one is a start, not a strategy.
This guide is for pre-retirees, retirees, business owners, and families with several account types or properties. It covers federal estate and gift taxes, state estate and inheritance taxes, and the income-tax issues that follow an inheritance.
Key Takeaways
- A will alone isn't a tax strategy; trusts, titling, beneficiaries, gifts, and insurance matter too.
- Exposure depends on estate size, state, marital status, and beneficiaries.
- Tax moves must still fit your retirement income and need for control.
- The plan works only if documents are signed, assets are retitled, and beneficiaries are coordinated.
How Estate Planning and Taxes Work Together
Two disciplines, one outcome
Estate planning sets legal instructions: who inherits, who decides, who serves as executor or trustee. Tax planning measures what those instructions cost. The ABA notes estate planning may or may not include tax planning, so the two need to be joined deliberately.
Financial choices feed both sides:
- Which accounts you draw from in retirement
- Where investments sit (taxable, IRA, Roth)
- Charitable giving and lifetime gifts
- Which appreciated assets you hold until death
Build a complete tax map
Start with an inventory of everything:
- Real estate and business interests
- Retirement accounts and taxable investments
- Insurance policies and digital assets
- Personal property, debts, and jointly owned assets
Then note how each is owned. Title, beneficiary designation, cost basis, and trust status decide whether an asset goes through probate, lands in the taxable estate, or gets different tax treatment.
Probate and the taxable estate are not the same test. Life insurance payable to a named beneficiary skips probate but can still count toward the estate if you kept ownership rights.
Finally, model your own needs: retirement income, health-care costs, emergency cash, business continuity, and room to adapt if the family changes. A plan that transfers wealth beautifully but leaves you short at 80 has failed.
Which Taxes Can Affect an Estate?
Federal estate, gift, and inheritance taxes
The federal government levies estate and gift taxes, but not an inheritance tax. The estate pays estate tax, and the executor files Form 706 when required.
| Year | Basic exclusion | Annual gift exclusion (per recipient) |
|---|---|---|
| 2026 | $15,000,000 | $19,000 |
| 2027 | $15,480,000 | $20,000 |
The top rate is 40%. Figures come from IRS inflation adjustments. Key rules:
- Form 706 is due 9 months after death, with a 6-month filing extension via Form 4768. The extension doesn't extend time to pay.
- Portability lets a surviving spouse use the deceased spouse's unused exclusion if a complete Form 706 is filed.
- Rev. Proc. 2022-32 offers late relief up to the fifth anniversary of death for estates not otherwise required to file.
- Form 709 is due April 15 of the year after a gift. Gifts within the annual exclusion generally need no return, but gift-splitting does.
State rules and income-tax consequences
State exposure turns on domicile, where property sits, and beneficiary relationships. Estates well under the federal threshold can still owe state tax. According to the Tax Foundation's 2026 table:
- Estate taxes (paid by the estate): Oregon $1,000,000, Massachusetts $2,000,000, Illinois $4,000,000, New York $7,350,000
- Top estate tax rates reach 20% in Washington and Hawaii
- Inheritance taxes (paid by the beneficiary): Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its tax effective 2025.
Income tax applies as well. Inherited property generally takes a basis equal to date-of-death value, while gifted property generally carries the donor's basis.
Under the SECURE Act's 10-year rule, many beneficiaries must empty an inherited retirement account within 10 years of death. Have a qualified tax professional confirm how these rules apply to you.
Tax-Efficient Estate Planning Strategies
Lifetime gifting
Gifts move assets and their future growth out of your estate. Tradeoffs to weigh before you give:
Lifetime exclusion is reduced by the gift
You give up control of the asset
Benefit eligibility may be affected
You still need enough left to fund retirement
Annual exclusion gifts: $19,000 per recipient in 2026
Larger gifts: reduce your remaining lifetime exclusion and call for a Form 709
Direct payments: tuition paid straight to the school and medical bills paid straight to the provider don't count as gifts. Books and room and board don't qualify.
Document every gift, and ask your tax professional whether a return is required.
Trusts and ownership structures
A revocable trust helps avoid probate and keeps control with you, but revocability alone gives no estate-tax benefit. Irrevocable trusts can remove assets from the estate, at the cost of flexibility. Even then, retained rights and the trust's terms decide the outcome.
Advanced tools, each requiring individual legal and tax analysis:
- Irrevocable life insurance trusts (ILITs)
- Grantor retained annuity trusts (GRATs)
- Spousal lifetime access trusts (SLATs)
- Charitable trusts
- Generation-skipping (dynasty) trusts
A trust isn't automatically tax-saving. Trust income is also taxed steeply: in 2026, estates and trusts hit the 37% bracket above just $16,000 of income.
Marital, charitable, and business planning
Several transfer tools sit alongside gifting and trusts:
- Marital deduction: Qualifying property can pass to a spouse without estate tax
- Qualified disclaimer: An irrevocable refusal made generally within 9 months redirects property to the next recipient
- Charitable vehicles: Donor-advised funds and charitable trusts support philanthropic goals
For business owners, buy-sell agreements, valuation work, and insurance address control and liquidity. IRC §6166 may allow estates holding a closely held business above 35% of the adjusted gross estate to pay tax over up to 10 years. PwC's 2025 survey found 44% of U.S. family firms said succession planning had affected their business in the prior year.
Homes, appreciated assets, and liquidity
A home gifted today carries your basis; one inherited generally gets a date-of-death basis. Gifting can also raise Medicaid questions. Georgia, for example, applies a 60-month look-back to certain transfers.
Selling and gifting the proceeds, using a trust, or holding until death each produce different tax and eligibility results.
Liquidity is easy to overlook. Life insurance, cash reserves, and business redemption plans can cover taxes and expenses so heirs aren't forced to sell the house, the company, or a concentrated stock position in a hurry.
How to Put a Tax-Aware Estate Plan Into Practice
Step 1: Gather information and define goals
Collect:
- Family relationships and ages
- Asset values, titles, and account statements
- Existing wills, trusts, and powers of attorney
- Insurance policies and debts
- Business interests and charitable intentions
- Expected retirement income needs
Then rank your priorities: control, providing for a spouse, protecting a vulnerable beneficiary, supporting charity, transferring a business, or treating heirs equitably. Goals drive the strategy.
Step 2: Draft, coordinate, and fund
An estate attorney typically reviews:
- Will and trust documents
- Powers of attorney and health-care directives
- Guardianship provisions and business agreements
- Beneficiary designations
Signing a trust doesn't fund it. Assets must be retitled, and a pour-over will only catches what's left behind, usually through probate. Retirement accounts and life insurance pass by beneficiary designation, so outdated forms can override the will.
Step 3: Plan for execution after death
Executors and trustees need clear instructions on:
- Valuations and tax filings
- Account access and liquidity
- Distributions to heirs and charities
Keep a written summary, store documents where successors can find them, and tell key people where things are without sharing every number.
Step 4: Review over time
Revisit the plan after:
- Marriage, divorce, a birth, or a death
- Retirement or a business sale
- An inheritance or a move between states
- Major asset or insurance changes
- Changes in federal or state tax law
Review beneficiary designations and titling with the legal documents. An old will doesn't control every account.
How an Advisory Team Can Help
Who should be involved
- Estate attorney: drafts wills, trusts, and legal documents
- CPA or tax professional: advises on and files returns
- Financial advisor: models cash flow and investments
- Insurance professional: designs coverage for liquidity
- Trustee and executor: carry out the plan
Collaboration matters more than finding one "best" advisor. Ask each professional about:
- Experience with similar estate sizes, business holdings, or real estate complexity
- Familiarity with your state's rules
- Communication habits and how they work with other advisors
- Conflicts of interest and fee structure
A coordinated tax-first approach
Zebulon Tax & Wealth Advisory, based in Alpharetta, Georgia, built the Zebulon Method around this idea. It brings tax strategy, estate and legacy planning, investment management, insurance design, and retirement income into one plan. The approach serves successful individuals, families, business owners, pre-retirees, and retirees.
The firm helps organize the financial and tax-planning work, model scenarios, coordinate implementation, and monitor results.
Clients rely on qualified attorneys for legal documents and qualified tax professionals for tax advice. Zebulon doesn't prepare tax returns or give legal advice, but it can coordinate with your current tax planner or recommend one.
Fees, limitations, and professional review
Common fee models include hourly, flat or project-based, retainer, percentage of assets, and bundled planning fees. Kitces Research reports 86% of advisory firms rely mainly on asset-based pricing, and 72% use more than one method. Ask for fees in writing before you commit.
This article is educational. Estate, gift, inheritance, income, and capital-gains rules vary by person and jurisdiction. Get personalized legal and tax advice before acting.
Frequently Asked Questions
What are the 7 steps in the estate planning process?
There's no single official list. A practical sequence covers goals, information gathering, risk review, choosing professionals, drafting documents, funding accounts, and ongoing review. CFP Board's seven-step process is for financial planning generally.
How does estate planning affect inheritance tax?
Ownership, trusts, lifetime gifts, beneficiary relationships, and state law all affect whether inheritance tax applies and who pays it. Only a handful of states impose one, so check your state's current rules.
Who has to pay US estate tax?
The estate pays federal estate tax, and the executor files Form 706 when required. It isn't charged to each beneficiary. State inheritance taxes, where they exist, generally fall on the recipient.
What is the maximum amount you can inherit without paying taxes?
No single limit exists. The federal estate exclusion is $15,000,000 in 2026, but state taxes, beneficiary relationship, and asset type vary. Inherited retirement accounts can also trigger income tax. Verify current law.
What is the most tax-efficient way to leave a home to a child?
A gift keeps your basis; an inheritance generally gets a date-of-death basis. Trusts or sales change control and Medicaid exposure. Weigh mortgage, state law, and housing security with an attorney and tax professional.
Who is the best person to advise on inheritance tax?
Use a team: an estate attorney for documents, a tax professional for tax questions, and a financial advisor for coordination. Each should handle their own piece.
