How Can I Avoid Paying Estate/Inheritance Taxes When I’m Gone?

Avoiding or reducing estate and inheritance taxes is primarily about planning ahead. While the right strategy depends on your state and the size of your estate, here are the most effective, commonly used approaches.

1. Understand Which Taxes May Apply

• Federal estate tax applies only to very large estates (multi-million-dollar threshold).

• State estate or inheritance taxes may apply even if no federal tax is owed.

  • Some states tax the estate

  • Others tax the beneficiaries

  • Many states have much lower exemptions than the federal level

2. Use a Trust (One of the Most Effective Tools)

Properly structured trusts can:

• Remove assets from your taxable estate

• Control how and when heirs receive assets

• Avoid probate (which saves time, cost, and privacy)

Common options include:

• Revocable Living Trust (great for control and probate avoidance)

• Irrevocable Trusts (used to reduce taxable estate size)

• Credit Shelter / Bypass Trusts (for married couples)

• Charitable Trusts (reduce taxes while supporting causes you care about)

3. Gift Assets During Your Lifetime

• Annual gifting allows you to transfer wealth tax-free each year

• Reduces the size of your taxable estate over time

• Can include cash, property interests, or other assets

This strategy is especially effective when started early.

4. Properly Structure Beneficiary Designations

Assets like:

• Retirement accounts

• Life insurance

• Payable-on-death (POD) accounts

…pass outside of probate, but poor beneficiary planning can still trigger taxes or unintended outcomes. Coordinating these with your estate plan is critical.

5. Consider Life Insurance Strategically

• Life insurance proceeds can help heirs pay estate taxes without selling assets

• When owned by certain trusts, proceeds may not count toward your taxable estate

6. Plan Specifically for State Estate Taxes

Many people are surprised to learn that:

• They owe no federal estate tax

• But still owe state estate tax

State-specific planning (especially with trusts) can significantly reduce or eliminate this exposure.

7. Update Your Plan Regularly

Tax laws change. Family situations change. Asset values change.

• Review your estate plan every few years

• Update after major life events or asset changes

You generally cannot avoid estate or inheritance taxes after you’re gone — the key is planning while you’re alive. With the right combination of trusts, gifting strategies, and beneficiary planning, many families legally reduce or eliminate estate taxes altogether.