Despite a lifetime of diligent work, wise saving, and smart investments, part of your wealth could be lost to taxes upon your passing. Federal estate tax rates reach 40%, and some states add their own on top. Most estates owe no federal estate tax, because the 2026 federal exemption is $15 million per person. Whether yours is exposed depends on your state, your total estate, and how your assets are titled. This guide covers each.
What Are Estate Taxes?
Estate taxes are levied on the transfer of a deceased person’s taxable estate. The federal rate reaches 40%, and several states impose their own, currently topping out at 20%. The rate applies only to the amount above the exemption, not to the whole estate, which is why the exemption figure matters more than the rate.
Federal and State Estate Taxes
While the federal estate tax is well-known, state estate taxes vary significantly and often matter more. Some states have none. Minnesota taxes estates above $3 million at 13% to 16%, a threshold five times lower than the federal one, and it does not allow portability between spouses. Washington’s top rate dropped from 35% to 20% on July 1, 2026. Your own state’s rules are the first thing to establish.
Strategies to Minimize Estate Taxes
Gifting Strategies
One of the most effective ways to reduce estate taxes is through gifting strategies. By gifting assets during your lifetime, you can reduce the size of your taxable estate. The IRS allows individuals to gift up to a certain amount each year without incurring gift taxes. Over time, these annual gifts can add up, significantly reducing the taxable portion of your estate.
Gifting is not automatically the cheaper route. Assets you give away carry your original cost basis to the recipient, while assets inherited at death generally receive a step-up to fair market value. Handing over highly appreciated stock can create a capital gains bill for your heirs that an inheritance would have erased, which is why gifting decisions belong in income tax planning alongside estate planning.
Annual Exclusion Gifts
The annual exclusion allows you to gift up to $19,000 per recipient in 2026 without gift tax consequences and without using any of your lifetime exemption. A married couple can give $38,000 to the same recipient. The strategy works well across multiple heirs and reduces the size of your estate considerably over time.
Lifetime Gift Exemption
In addition to the annual exclusion, the IRS provides a combined lifetime gift and estate tax exemption. For 2026, the basic exclusion amount is $15 million per individual, up from $13.99 million in 2025. Gifts above the annual exclusion draw against that amount rather than triggering tax immediately, so the exemption is a shared budget across your lifetime and your estate.
Trusts as a Tool for Estate Planning
Trusts are a versatile tool in estate planning, providing a means to control and distribute your assets according to your wishes while minimizing estate taxes. There are various types of trusts, each serving different purposes in the estate planning process.
Revocable Living Trusts
A revocable living trust allows you to retain control of your assets during your lifetime while providing a mechanism for those assets to be managed and distributed after your death without going through probate. While it does not directly reduce estate taxes, it offers privacy and efficiency in asset distribution.
Irrevocable Trusts
An irrevocable trust, on the other hand, removes assets from your taxable estate, potentially reducing estate taxes. Once assets are transferred to an irrevocable trust, you relinquish control over them, but in return, those assets are no longer considered part of your estate for tax purposes. This can be a powerful tool in minimizing taxes when leaving assets to the next generation.
Utilizing Estate Tax Exemptions and Elections
QTIP Election
The Qualified Terminable Interest Property (QTIP) election allows a surviving spouse to receive income from the trust during their lifetime, with the remaining assets passing to other beneficiaries upon their death. This election can provide estate tax benefits by deferring taxes until the death of the surviving spouse.
Portability Election
The portability election allows a surviving spouse to use any unused portion of the deceased spouse’s federal exemption, effectively doubling what passes to heirs free of federal estate tax. It is not automatic. The executor must elect it by filing a federal estate tax return after the first death, even when no tax is owed, and families lose portability every year by skipping that filing. Minnesota does not offer portability at the state level.
The Importance of Expert Guidance
Estate planning is complex and highly personalized. Work with financial advisors, tax professionals, and estate planning attorneys so the strategies fit your situation rather than a general case. Our generational wealth planning runs those conversations alongside in-house CPAs instead of leaving you to coordinate them.
Timing matters as much as structure. The plans that fail are rarely the ones with the wrong trust. They are the ones where beneficiary designations and documents went unreviewed for a decade.
Review Your Plan Against This Year’s Numbers
The tax burden on your heirs comes down to four things: where you live, how much of your exemption you have used, how your assets are titled, and whether the required elections actually get filed. The federal exemption sits at $15 million per person for 2026, but Minnesota’s $3 million threshold reaches far more families, and no structure helps if nobody prepares the people receiving the money. Preparing the next generation is the part most plans skip.
Contact Berger Financial Group to review your estate against the current exemptions and your own state’s rules.
