8 Legal Ways To Avoid or Cut Estate Taxes

If you want to pass along assets to heirs, a little bit of tax planning can go a long way.

Most people who leave an inheritance prefer to avoid hefty estate taxes. The good news is that many different strategies are available to minimize estate taxes.

Here are some of the top money moves you can make to minimize estate taxes.

The annual gift tax exclusion allows you to give gifts to individuals free of taxation up to the annual exclusion limit.

In 2024, a single person can give away up to $18,000 to each individual over the course of a year. Married couples can give away up to $36,000 to an individual.

In 2025, the annual limit will increase to $19,000 per single person, and $38,000 for couples.

Some people find this to be an excellent way to disburse wealth during their lifetime. As you distribute funds, you can lower your estate’s value, which might reduce estate taxes in the future.

You can also take advantage of the lifetime gift tax exclusion to lower the tax burden on your estate.

As of 2024, you can give away up to $13.61 million over your lifetime without any of the amount being subject to federal gift taxes. The amount rises to $13.99 million in 2025.

The current lifetime gift tax exclusion grew out of the federal Tax Cut and Jobs Act of 2017. However, those tax cuts are slated to expire in 2026 unless they are extended.

If the tax cuts do expire, the lifetime gift tax exclusion limit will “revert to its pre-2018 level of $5 million, as adjusted for inflation,” according to the IRS.

Trusts offer a strategic way to protect assets from estate taxes. While there are different types of trusts, choosing the right one for your situation can help you reduce the size of your estate so you can lower or eliminate your estate tax burden.

For example, establishing an irrevocable trust can help you reduce estate taxes, but it comes with one big potential limitation: The grantor of this type of trust cannot change or end the trust once it's been established.

Setting up a trust can be a good idea. But generally, it’s helpful to consult an estate planning attorney when doing so.

A family limited partnership (FLP) allows you to transfer assets to heirs without giving up complete control of the assets.

The IRS views assets in an FLP — such as a business or real estate — to be outside your estate. That can shield future returns on the assets from estate taxes.

Giving assets to charity can lower the value of your estate. Donations also help lower your tax bill in the year you make the donation. And of course, when you give to charity, you can support a cause in which you believe.

A donor advised fund is one vehicle you can use to facilitate charitable giving in a tax-efficient way. A donor advised fund allows you to make tax-deductible donations that grow tax-free. You use the fund to dole out money to your favorite charities.

If you want a simpler option, give assets to charities directly to lower your estate’s value.

If you are a surviving spouse, portability of estate and gift tax lets you inherit the unused portion of your deceased spouse’s gift and estate tax exemption.

Essentially, this means that as a surviving spouse, you can potentially double your estate and gift tax exemption limit.

Although this is a worthwhile opportunity, it requires filing the correct tax forms at the right time. So, start looking into a portability election as soon as you begin the estate planning process. The right estate planning professional can help you file the necessary paperwork.

If you have children or grandchildren, funding a 529 account for their educational costs is a great way to support their future.

As of 2024, you can contribute up to $18,000 per year into a 529 account without triggering gift taxes. In 2025, that amount will increase to $19,000.

When the funds enter the 529 account, the money no longer counts as a part of your estate. That means you can potentially lower overall estate taxes while still passing on funds to heirs.

In addition to federal estate taxes, a handful of states impose their own estate taxes. They include the following:

• Connecticut
• Hawaii
• Illinois
• Maine
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

The District of Columbia also has an estate tax. Some people might find that moving out of one of these places helps to lower their estate tax burden.

If you want to avoid wasting money on estate taxes, making smart moves now can significantly reduce your costs.

Since estate planning is often complex, it usually makes sense to work with an estate planning professional to help you set up a tax-efficient solution for your estate goals.