Estate Planning — United States

The federal exemption, and the coming reduction

The single most-watched variable in US estate planning is the federal exemption. As of 2026, the unified estate and gift tax exemption is in the range of $13M to $14M per individual, or $26M to $28M per married couple with portability. Above the exemption, transfers are taxed at 40 percent federal.

Under the Tax Cuts and Jobs Act, the exemption is scheduled to reduce by roughly half at the end of 2025 unless Congress acts. The precise outcome remains unknown at the time of writing. The working assumption for most high-net-worth planning is that the reduction may occur, and that households with significant assets should at least evaluate using the current exemption before it potentially sunsets.

This creates a planning window. Households that use the current exemption now (by funding SLATs, dynasty trusts, or making outright gifts) lock in the use regardless of future law changes. “No clawback” regulations clarify that transfers made under the current exemption will not be retroactively taxed if the exemption is reduced. For appropriate candidates, this is a use-it-or-lose-it window.

The GST layer

The generation-skipping transfer (GST) tax is a separate 40 percent tax on transfers to grandchildren or further descendants. It has its own exemption, currently aligned with the estate exemption. A dynasty trust funded with GST-exempt assets can compound across multiple generations without incurring additional transfer tax at each generational level.

The GST mechanics are technical but consequential. A trust funded with GST exemption and properly structured can hold family wealth for 90 or more years in most jurisdictions, or perpetually in states that have abolished the rule against perpetuities (Florida, South Dakota, Alaska, Delaware with modifications, and others). The long-horizon tax benefit is enormous. A $10M GST-exempt trust compounding at 7 percent for 80 years becomes $2.3B without estate or GST tax friction at the beneficiary generations.

The state estate tax layer

Sixteen US states plus DC impose their own estate or inheritance tax. The thresholds are often dramatically lower than federal:

• Oregon: $1M exemption
• Massachusetts: $2M exemption (up from $1M in 2023)
• Washington: $2.193M exemption
• Illinois: $4M exemption
• New York: $6.94M exemption, with a cliff provision that can tax the entire estate if over 105 percent of the exemption
• Maryland: $5M exemption plus separate inheritance tax
• Connecticut, Rhode Island, Minnesota, Vermont, Maine, Hawaii, New Jersey, Kentucky, Nebraska, Pennsylvania, Iowa: Various

For a household with a $15M estate dying in Massachusetts, the state estate tax can run $1.5M or more beyond federal. The same household dying in Florida pays zero state estate tax. One of the largest single decisions in estate planning, and it is a residency decision, not a document decision.

The structure of a sophisticated US estate plan

Plans vary by family, but a set of elements recur in high-functioning multi-generational plans.

Revocable living trust (pour-over structure). Standard foundational document in most states. Avoids probate, provides incapacity planning, and serves as the receptacle for retitled assets. Not itself an estate tax vehicle.

Irrevocable life insurance trust (ILIT). Holds life insurance policies outside the taxable estate. Provides liquidity at death, which is critical for estates heavy in illiquid assets where the estate tax bill would otherwise force a distressed sale. Crummey withdrawal rights enable annual exclusion gift funding.

Spousal lifetime access trust (SLAT). An irrevocable trust for a spouse’s benefit, removing the settled assets from the combined estate. Preserves indirect access to the assets through the spousal relationship. Frequently used to lock in the current federal exemption. Paired SLATs (one from each spouse to the other) require careful drafting to avoid the reciprocal-trust doctrine collapsing the arrangement.

Dynasty trust. A long-duration irrevocable trust designed to hold assets outside the taxable estate of successive generations. Situs is typically South Dakota, Delaware, Nevada, or New Hampshire for favorable trust law, privacy, and state tax treatment. Funded with GST-exempt assets to maximize the multi-generational benefit.

Grantor retained annuity trust (GRAT). The grantor transfers assets in exchange for an annuity stream priced at the §7520 rate. Appreciation above the rate passes to remainder beneficiaries gift-tax-free. Short-term rolling GRATs (typically 2-year terms) are the standard pattern for founders pre-liquidity event.

Intentionally defective grantor trust (IDGT) with sale. The grantor sells appreciating assets to the trust in exchange for a note. The grantor continues to pay the trust’s income tax (tax-free additional gift). The value of the sold assets grows in the trust, outside the grantor’s estate.

Family limited partnership / LLC. Concentrates decision-making in general partners or managers while distributing economic interests more broadly. Properly structured, supports valuation discounts on minority interests. The IRS has scrutinized aggressive applications. Conservative ones remain effective.

Private foundation or donor-advised fund. Institutional vehicle for the family’s philanthropic intent. Private foundations provide more control and multigenerational governance. DAFs provide more simplicity.

Trust situs: which state for the trust

South Dakota. The dominant choice for new dynasty trusts. No state income tax on trust income (under most circumstances). Strong asset protection laws. Perpetual trust duration permitted. Favorable decanting statutes. Private trust company option. Strong quiet trust provisions.

Delaware. Long-standing trust jurisdiction with mature case law. No state income tax on trust income for trusts with non-Delaware-resident beneficiaries. Favorable for directed trusts, where investment and distribution decisions are split among multiple fiduciaries.

Nevada. No state income tax. Strong asset protection. Favorable for self-settled spendthrift trusts (two-year statute of limitations for creditor claims).

New Hampshire. Relatively newer to the sophisticated dynasty trust market. Low-friction legislation, competitive framework, good for families seeking alternatives to the more crowded jurisdictions.

Wyoming. Zero state income tax, strong privacy, growing in popularity especially for trust-company-focused structures.

The choice among jurisdictions involves state tax of trust income, asset protection profile, rule-against-perpetuities treatment, decanting provisions, directed trust capability, and (informally) the quality of trust officers and trust companies available locally. For large estates, the decision is worth structuring as a specific diligence exercise rather than a default.

The asset protection dimension

US estate planning increasingly doubles as asset protection planning.

Self-settled spendthrift trusts. Available in South Dakota, Nevada, Delaware, Alaska, and a handful of other states. Allow a grantor to establish a trust for their own benefit with protection from future creditors, subject to specific requirements and waiting periods.

Foreign asset protection trusts. Cook Islands, Nevis, Belize, and similar jurisdictions offer stronger protection but come with meaningful compliance complexity (Form 3520, Form 3520-A, FBAR). Appropriate in specific high-risk circumstances. Unnecessary for most families.

Domestic asset protection trusts (DAPTs) combined with SLATs. A common hybrid structure. The SLAT provides estate tax benefits and spousal access. The DAPT adds creditor protection.

Titling of assets. Tenancy by the entirety for married couples (available in specific states) provides asset protection for jointly held property. LLC ownership of real estate shields personal assets from liabilities arising from the property.

Specific US mechanics worth knowing

Basis step-up at death. One of the most valuable provisions in US tax law. Assets held at death receive a cost basis stepped up to fair market value. A long-held, highly appreciated concentrated stock position held until death eliminates all accumulated capital gains. The implication: some appreciated assets should be deliberately held for step-up rather than sold during life.

Portability of unused exemption. The deceased spouse’s unused exemption (DSUE) can be transferred to the surviving spouse. Requires timely filing of Form 706. Executors of non-taxable estates routinely fail to file the return, forfeiting significant planning flexibility.

Section 6166 installment payment of estate tax. For estates heavy in closely-held business interests, Section 6166 allows estate tax on the business portion to be paid in installments over up to 14 years. Reduces the liquidity pressure that would otherwise force a distressed sale of the family business.

QDOT for non-citizen surviving spouses. The unlimited marital deduction does not apply to transfers to a non-US-citizen spouse unless the assets pass through a qualified domestic trust (QDOT). Relevant for international families. Often missed in otherwise sophisticated plans.

Annual exclusion gifts and 529 plan gift-splitting. Five years of annual exclusion gifts can be front-loaded into a 529 plan for education, using gift-splitting between spouses. A couple can move $190,000 per beneficiary in a single year this way.

Crummey powers. The withdrawal rights that qualify gifts to trusts for the annual exclusion. Standard provisions. Documentation discipline is critical.

What happens during a US estate administration

A brief but useful picture for principals who have not been through it.

Immediate post-death. Death certificate processing, initial account freezes, notification of advisors, executor or trustee assumption of duties. First few weeks.

Probate (where applicable). Assets held individually without beneficiary designation pass through probate, a public court process for validating the will and administering the estate. Duration varies by state. California and Florida are known for longer processes. Most sophisticated plans bypass probate through trust ownership.

Estate tax filing. Form 706 due within 9 months of death (6-month extension available). For taxable estates, the return requires appraisals of all estate assets, which is often the most time-consuming step.

Trust funding and distribution. Assets pass into the trusts designated by the plan. Funding errors (assets that were never retitled to the trust during life) are common and must be handled through court processes.

Beneficiary distributions. Begin under the terms of the trust. Income-producing assets may generate current distributions. Growth assets may remain in trust for extended periods.

Ongoing trust administration. Annual accountings, beneficiary reporting, investment management under the trust’s investment policy. A well-drafted plan anticipates the administration over decades rather than just the initial distribution.

Common failure modes

Un-funded trusts. A plan drafted perfectly, with assets still titled in the grantor’s name because retitling was delayed. Defeats the structure. Annual review of asset titling matches the plan.

Stale plans. Documents drafted 15 or more years ago that do not match the current family, current state of residence, current business structure, or current tax law. The cost of updates is always far less than the cost of outdated documents.

Missed GST allocation. Failing to properly allocate GST exemption to dynasty trusts. Once missed, hard to correct. Limits the multi-generational value of the trust dramatically.

Portability not elected. Non-taxable estates that do not file Form 706, losing the DSUE. The surviving spouse’s planning flexibility is permanently reduced.

Trustee poorly chosen. A trusted but deferential trustee who becomes the rubber stamp. Consider institutional co-trustees, independent trust protectors, and clear dispute resolution provisions.

Basis step-up sacrificed unnecessarily. Gifting highly appreciated assets during life (carryover basis) when the assets could have been held until death (stepped-up basis). The estate tax savings sometimes outweigh the income tax cost. Sometimes they do not. Requires deliberate analysis.

State-level estate tax ignored. Plan focuses on federal exemption while ignoring the state’s lower threshold. Moderate estates in high-estate-tax states pay materially more than identical estates in zero-state-estate-tax states.

Advanced patterns

Beneficiary Defective Inheritor’s Trust (BDIT). A sophisticated variant where the beneficiary is a grantor for income tax purposes but the settlor is a different family member. Specialized use case.

Preferred freeze partnership. A family partnership structure where preferred interests are held by the senior generation (stable value) and common interests pass to the next generation (appreciating value). Moves future appreciation out of the estate at low gift-tax cost.

Private placement life insurance (PPLI) held in an ILIT. Investment assets inside a life insurance wrapper, held in a trust. Tax-efficient ongoing growth plus tax-free death benefit passing to beneficiaries outside the estate.

Grantor trust decanting. Moving assets from an older trust to a newer trust with updated terms. Most states permit this. Specific provisions vary. Enables updating of outdated structures without triggering a taxable event.

Family office or private trust company. For families large enough, forming a private trust company provides trustee continuity, flexibility in trustee succession, and confidentiality that exceeds commercial trustee options.

Where to go deeper

TIGER 21 and Long Angle members workshop estate structures among peers. For US-specific guidance, the intersection of state residency, trust situs, and business structure is where families typically benefit most from peer conversation. See also Residency & Relocation, US for the interaction of state residency with estate planning, and Philanthropy, US for charitable vehicles as estate planning tools.