Read our in-depth guide covering estate planning strategies that may potentially help reduce taxes when transferring wealth to heirs, including gifting, trusts, and life insurance considerations. 

Managing Tax Burdens when Passing on Wealth to Heirs

Transferring wealth across generations comes with complex decisions, especially when navigating federal and state tax rules. For high-net-worth individuals and families, early planning can play an important role in how much of that wealth is available to future heirs. Strategies such as gifting, trusts, life insurance, and valuation techniques may help manage tax exposure while supporting long-term legacy goals.

This guide outlines several considerations when developing an estate plan:

• Utilize annual and lifetime gift tax exemption amounts
• Explore trust structures to manage ownership and tax impact
• Fund estate taxes through life insurance
• Evaluate the step-up in basis and inherited retirement account rules
• Consider family partnerships and valuation discounts
• Review changes to exemptions and state laws
• Coordinate probate and tax strategies
• Establish ongoing review and family governance practices

Strategies to Manage Taxes on Inherited Wealth

Use Annual and Lifetime Gifting to Reduce Taxable Estate

Gifting during life may gradually reduce the size of a taxable estate. The annual gift tax exclusion allows gifts up to $19,000 per recipient (as of 2025) each year without triggering gift tax reporting. Married couples can combine their gifts, allowing for gifts up to $38,000 per recipient (as of 2025). Over time, annual gifting can shift assets out of the estate.

Larger gifts can be made using the lifetime gift and estate tax exemption, which is set at $13.99 million per individual (or $27.98 million for couples) in 2025. With the passage of OBBBA, the sunset of current lifetime gift and estate tax exemption amounts has been eliminated. Starting in 2026, the exemption amounts will be permanently increased to $15 million per individual ($30 million for couples) with expected future increases based on inflation. Families with significant wealth may consider using more of their exemption during their lifetime to not only shift assets out of the estate but also allow for these assets to continue to grow free of estate tax. Certain direct payments, such as tuition or qualified medical expenses, do not count toward annual or lifetime limits if paid directly to the provider.

Use Trusts for Control and Tax Efficiency

Trusts can provide long-term structure and support specific planning goals. For example:

• Irrevocable trusts like an Intentionally Defective Grantor Trust (IDGT) remove appreciating assets from the estate while the grantor continues to pay the income tax, potentially reducing overall estate value.
• Grantor Retained Annuity Trusts (GRATs) allow the transfer of growth above a set interest rate to beneficiaries at a reduced valuation for gift tax purposes.
• Charitable Remainder Trusts (CRTs) allow donors to retain income for a period of time, receive an immediate income tax deduction, and leave the remainder to a charity.
• Marital trusts, including AB and QTIP structures, may defer estate taxes until the surviving spouse’s death. These are often used in complex family or cross-border estate situations.

Leverage Life Insurance to Cover Estate Taxes

When estates include illiquid assets like real estate or private business interests, life insurance may provide needed liquidity. By placing a policy inside an Irrevocable Life Insurance Trust (ILIT), proceeds are kept outside of the taxable estate and can be used to help pay estate taxes or provide for beneficiaries without needing to sell assets.

This approach may be especially relevant in cases where heirs would otherwise need to liquidate holdings quickly to cover tax obligations.

Preserve Step-Up in Basis and Manage Retirement Account Withdrawals

Assets passed at death may receive a step-up in cost basis, which can reduce capital gains tax when heirs later sell them. For this reason, families often compare the potential tax impact of gifting during life versus holding certain appreciated assets until death.

Retirement accounts, particularly IRAs and 401(k)s, have different rules. Under the SECURE Act, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within 10 years, which can result in concentrated taxable income. Planning around withdrawal timing, Roth conversions, or alternative asset strategies may help address this impact.

Use Family Limited Partnerships and Valuation Discounts

Family Limited Partnerships (FLPs) or LLCs allow for the transfer of minority interests in a business or property at a discounted value. This structure may reduce the value of transferred assets for gift tax purposes while maintaining a level of control for the original owners.

Some families use a "squeeze-freeze-please" strategy: transferring appreciating assets (squeeze), freezing their value through trusts or partnerships (freeze), and documenting the structure for IRS review (please).

Plan Around Changing Exemptions and State-Level Rules

Federal estate tax exemption limits are currently at an all-time high. Estate tax may no longer be a concern for some families, creating opportunities to simplify estate planning.

In addition, several states impose their own estate or inheritance taxes with lower exemption thresholds. Families with property in multiple states or international assets may need to plan across jurisdictions.

Coordinate Probate and Estate Tax Planning

Probate can delay the distribution of assets and may expose estate details to public record. Strategies such as revocable living trusts can allow certain assets to pass outside probate. When paired with broader tax planning strategies, this approach may help streamline the transfer process and reduce costs.

Implement Ongoing Review and Family Governance

Estate and tax planning is not a one-time event. Changes in wealth, law, family structure, or philanthropic goals can all impact an existing plan. Regular reviews may help keep the structure aligned with current objectives.

Establishing a family governance framework—such as family meetings, succession plans, or education initiatives—can support longer-term continuity and help future generations understand and manage their roles effectively.

The Role of a Financial Advisor in Multigenerational Wealth Transfer

Wealth transfer planning often involves coordination across legal, tax, and investment disciplines. A financial advisor can help:

• Identify strategies that align with gifting, trust, or liquidity goals
• Coordinate with estate attorneys, CPAs, and insurance professionals
• Review the impact of legislative changes and life events on your plan
• Support long-term planning across generations, including governance structures and education

By working with a qualified advisory team, families can develop an estate strategy that reflects both their financial goals and legacy values. Contact an advisor near you to discuss your needs.

DISCLOSURES

• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
• Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• The content of this blog is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions; including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• There is no guarantee that all the services detailed herein will be offered to a client. The services EPWA offers clients is dependent on the requirements of each client. In many instances, clients or prospective clients may not have a need for all or some of the services detailed.