If your estate is worth several million dollars, you need a plan to cut estate taxes. Start by knowing the current federal exemption. Then use every legal tool before the rules change. The One Big Beautiful Bill, signed in 2025, made the higher Tax Cuts and Jobs Act exemption levels permanent. For 2026, the federal estate tax exemption is roughly $15 million per person. Anything above that amount is taxed at 40%. For high net worth people, planning ahead keeps wealth in the family. Without it, you hand a large check to the IRS.
Use the Annual Gift Tax Exclusion
One of the simplest moves is to give money away during your lifetime using the annual gift tax exclusion. In 2026, you can give up to $19,000 per person per year. This does not trigger gift tax or reduce your lifetime exemption. A married couple can give $38,000 per person each year.
Over time, this moves a lot of value out of your estate. You can also pay tuition or medical bills for anyone, with no limit. The payment must go straight to the school or provider.
For families with younger heirs, the UTMA lets you put gifts in a custodial account. The child gets it when they turn 18. This is a simple way to shift assets while keeping some control during the child's younger years.
Types of Trusts That Reduce Estate Taxes
Several types of trusts are built to cut tax bills. An irrevocable life insurance trust (ILIT) removes life insurance proceeds from your taxable estate. A grantor retained annuity trust (GRAT) lets you transfer assets to heirs while keeping an income stream. The rest passes tax-free if the trust beats IRS interest rates.
For married couples, planning for the surviving spouse is critical. A credit shelter trust (also called a bypass trust) locks in the first spouse's exemption. Without it, that exemption is wasted. Without this, a couple could lose millions in combined exemption.
Spousal lifetime access trusts (SLATs) allow one spouse to create an irrevocable trust for the other. This removes assets from both estates while still giving the surviving spouse access to the funds.
Charitable Gifts and Split-Interest Trusts
Charitable gifts can play a major role in cutting estate taxes. A charitable remainder trust lets you receive income during your life. The rest goes to charity at death. You get a current income tax deduction and remove the assets from your estate.
A charitable lead trust works the other way. It pays charity first. Then the rest passes to your heirs at a lower tax value.
Direct charitable gifts in your will or trust also reduce the taxable estate dollar for dollar. For real estate or closely held business interests, giving assets that have grown in value avoids capital gains tax entirely.
Coordinate with Your Full Financial Plan
Estate tax reduction is not a single move. It takes teamwork across your entire plan. Life insurance, retirement accounts, real estate, and business interests all factor in. An estate planning team can model different paths and show you exactly how each plan affects the taxes your family will owe.
The exemption amount is high right now, but Congress can change the rules. Locking in plans while the current law is in place is the smart play.