Estate Tax Strategies for High-Net-Worth Families

Where the federal threshold sits now

The federal estate tax applies only to the portion of an estate above the exemption, and it applies at a flat 40%. For 2026 the numbers are:

The exemption is indexed for inflation, so it rises each year. The Generation-Skipping Transfer (GST) exemption sits at the same $15 million.

Portability, and the filing trap inside it

A married couple can shelter $30 million, but not automatically. When the first spouse dies, the unused portion of their exemption transfers to the survivor only if the estate files Form 706 and makes the portability election. Estates below the filing threshold often skip the return because no tax is owed — and in doing so can forfeit up to $15 million of exemption. A late election is still possible for some estates: Rev. Proc. 2022-32 allows a simplified late election up to the fifth anniversary of the death, but only for estates that were not otherwise required to file, so do not count on it. If you take one action from this page, it is this: file the return even when nothing is due.

Who this actually affects

Very few households owe federal estate tax. If your total estate is comfortably below $15 million, the federal question is largely settled and your planning energy belongs elsewhere:

• State estate and inheritance tax. Several states tax estates at thresholds far below the federal one, and a few impose inheritance tax on the recipient. This is now the more common exposure.
• The documents themselves. A current will, durable power of attorney, healthcare directive, and up-to-date beneficiary designations. Beneficiary designations override your will — a stale one on an old 401(k) is a common and entirely avoidable error.
• Basis planning. Assets held until death generally receive a stepped-up cost basis. Gifting appreciated assets during life gives up that step-up. With the exemption this high, holding for the step-up is often better than gifting to reduce an estate that was never going to be taxable.

Strategies that still matter above the exemption

For estates genuinely above $15 million per person, the established techniques remain available. They are complex, most are irreversible, and every one of them needs a qualified estate attorney — this is an orientation, not instructions.

GRAT — Grantor Retained Annuity Trust

You transfer appreciating assets into an irrevocable trust and take back annuity payments over a fixed term. Growth above the IRS Section 7520 hurdle rate passes to your heirs outside your estate. A “zeroed-out” GRAT sets the annuity to offset the full transferred value, so little or no taxable gift arises at creation. The principal risk is mortality: if you die during the term, the assets return to your estate and the exercise achieves nothing.

IDGT — Intentionally Defective Grantor Trust

The trust is outside your estate for estate tax purposes but treated as yours for income tax. You pay the trust’s income tax from your own funds, which lets the trust compound untaxed while further reducing your taxable estate — an effect the IRS does not treat as an additional gift.

Dynasty trust

Holds assets across generations without a transfer tax at each one. Some states let these run for centuries or indefinitely: South Dakota and Alaska have abolished the rule against perpetuities, and Nevada allows 365 years. Allocating GST exemption to the trust is what shelters it across generations.

Charitable remainder trust

Pays you an income stream for a term or for life, with the remainder passing to charity. It produces a current partial charitable deduction and removes the asset from your estate. Useful where a concentrated, highly appreciated position needs to be diversified without triggering the full capital gain at once.

What changed in practice

The removal of the sunset took the urgency out of this area. Large irrevocable gifts made specifically to lock in exemption before a deadline no longer have a deadline behind them. That does not make those structures wrong — it means the decision should now rest on your own circumstances and timeline rather than on a date in the tax code. If you were advised to act quickly for that reason, it is worth revisiting the recommendation with your attorney.

Frequently asked questions

What is the federal estate tax exemption in 2026?

The federal estate and gift tax exemption is $15 million per person in 2026, or $30 million for a married couple using portability. Estates valued above the exemption are taxed at a flat 40% rate on the excess. The One Big Beautiful Bill Act, signed on 4 July 2025, set this amount and made it permanent — it does not sunset, and it is indexed for inflation each year.

Did the estate tax exemption drop in 2026?

No. Under the Tax Cuts and Jobs Act the doubled exemption had been scheduled to sunset on 1 January 2026 and revert to roughly $7 million per person. That sunset was removed before it took effect. The One Big Beautiful Bill Act raised the exemption to $15 million per person from 2026 and made it permanent. Planning that was built around beating the 2026 deadline no longer has a deadline to beat.

What is a GRAT and how does it reduce estate taxes?

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust where you transfer appreciating assets and retain annuity payments for a fixed term. If the assets grow faster than the IRS Section 7520 hurdle rate, the excess growth passes to your heirs free of gift and estate tax. A zeroed-out GRAT sets the annuity payments equal to the full value of the transferred assets plus the hurdle rate, meaning there is little or no taxable gift at creation.

Do I need an estate plan if my assets are below the exemption?

Most families are well below the $15 million federal exemption and will owe no federal estate tax. Estate planning still matters for reasons that have nothing to do with federal tax: a will, powers of attorney, a healthcare directive and current beneficiary designations control who decides for you and how assets transfer. State estate or inheritance tax is a separate question — several states tax estates at thresholds far below the federal one.

How much can I give away tax-free each year?

The annual gift tax exclusion is $19,000 per recipient in 2026 ($38,000 for a married couple giving jointly). You can give that amount to as many people as you like each year without using any of your lifetime exemption. You do not need to file a gift tax return for gifts within your own $19,000 per recipient, but spouses who want to split a gift and treat half as coming from each must file Form 709, whatever the amount. Gifts above the annual exclusion count against your $15 million lifetime estate and gift tax exemption. Direct payments to a medical provider, or tuition paid directly to an educational institution, are exempt without limit.

What is a dynasty trust?

A dynasty trust holds assets for multiple generations without incurring estate tax at each generational transfer. Several states allow such trusts to last for centuries or indefinitely: South Dakota and Alaska have abolished the rule against perpetuities, and Nevada allows 365 years. The Generation-Skipping Transfer (GST) tax exemption — also $15 million per person in 2026 — can be allocated to a dynasty trust to shelter assets across generations.