The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
The estate tax is a tax imposed when transferring a deceased person’s estate to heirs and affects the estate’s beneficiaries. The tax rate is based on the size of the estate and where the estate is based. So how does it tax work, and what are its tax rates?
In this article, we’ll review the basics of the estate tax and walk through different tactical approaches you can take to maximize the hard-earned gains you pass on to future generations:
The estate tax is a tax on assets transferred on a deceased person’s death to individuals other than the deceased person’s spouse. It is paid by the deceased person’s estate and is due nine months after the person’s death. The federal estate tax rate is 40%. That means that if you are leaving your beneficiaries a $23.99 million estate, the estate will owe $4,000,000 in federal estate tax. And that’s even before accounting for any state estate tax liability!
Each individual has a lifetime exemption from both estate tax and gift tax (see below). This exemption is the value of assets you can give away, throughout your life and after your death, without being subject to federal estate tax. For 2025, this exemption is $13.99 million per person (up from $13.61 million in 2024). Because the exemption is per person, married couples can effectively give away double that amount.
However, the federal estate tax exemption level is scheduled to be reduced by 50% to about $7.15 million when the Tax Cuts and Jobs Act sunsets on January 1, 2026. That is why it’s essential to get started with estate planning sooner rather than later.
Need some help to understand the most convenient tax planning structure to reduce your estate taxes? Our team of tax-planning experts can help!
The gift tax is similar to the estate tax, except instead of applying to transfers upon death, it applies to transfers made during life. Gifts are also taxed at 40% at the federal level. If someone gifts $1,000,000 to her child and the giver has already used up her lifetime exemption amount (discussed above), that gift will generate $400,000 of federal gift tax liability.
In addition to the lifetime exemption amount, each individual has an annual gift tax exclusion amount. This is the amount someone can gift in any given year to a person without using up any lifetime exemption or having to report the gift on a gift tax return (Form 709). In 2025, the annual exclusion amount is $19,000.
The estate tax is pretty draconian. Fortunately, it can be minimized or completely avoided through estate-tax planning. Estate-tax planning is about arranging your affairs to minimize the amount of federal and state estate taxes your heirs will face and maximize how much you pass on to them. In practice, it means making lifetime gifts to irrevocable trusts that are designed to transfer assets to your loved ones as tax efficiently as possible. Valur can help you set up these trusts for free!
Currently, each state has its own estate tax rules. In some states, you won’t owe state estate taxes when passing assets on and in others, you’ll pay marginal rates. Zero-estate taxes make some states attractive for wealthy individuals and those with large estates, as they can pass on their estates to their heirs without worrying about the government taking a significant portion of their wealth. However, if the estate’s value exceeds the federal tax exemption amount, then the estate is responsible for paying the remaining tax.
So, how do all of these apply in the state of Michigan as an example?
Let’s say your taxable estate is $18 million. Michigan doesn’t have an estate tax of its own, but your estate will owe federal estate tax since it’ll be over the $13.61 million lifetime exemption amount. The federal estate tax would be calculated as follows: 0.4 x ($18,000,000 – $13,610,000)=$1,756,000. In other words, your heirs would get $16,244,000 after tax. Fortunately, with some estate planning, you could avoid that estate tax entirely.
Different tax planning strategies can help you reduce your estate taxes. Here are the four key to consider:
You can also compare the quantitative returns and tax savings of these different strategies using our estate tax savings calculator and customize it to your own situation
The estate tax imposes a significant burden on those it applies to: the federal estate tax rate is 40%, and some states have their own estate taxes. So, if you think you may end up being over the estate tax exemption amount, you should take action sooner rather than later. We can help!
We’ve built a platform to give everyone access to the tax and wealth-building tools typically reserved for wealthy individuals with a team of accountants and lawyers. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures. With Valur, you can build your wealth more efficiently at less than half the cost of competitors.
From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $3 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center. You can also see your potential tax savings with our online calculators or schedule a time to chat with us!
