Strategies for the Taxable Estate

Whether any of this applies to you

Start here, because for most families the answer is no and the rest of this page is interesting rather than relevant.

Federal estate and gift tax applies only above a threshold called the basic exclusion amount. For 2026 that amount is fifteen million dollars per person, or thirty million for a married couple using portability. Estates above the exclusion amount are taxed at forty percent. The One Big Beautiful Bill Act set it at the current level permanently, with annual inflation adjustments beginning in 2027. This means the $15 million figure above will drift upward over time and is worth confirming rather than remembering.

A separate annual gift exclusion lets you give a limited amount to any number of individual recipients each year without touching the lifetime exemption at all. For many families that alone is the whole strategy, and nothing further on this page is needed.

Two caveats matter. Portability between spouses is not automatic; it requires filing an estate tax return to claim it. And several states impose their own estate or inheritance tax at thresholds far below the federal one, so a family well under the federal exemption can still face a state level exposure depending on where they live or own property.

Sources: IRS: What’s new, estate and gift tax, Frequently asked questions on estate taxes, Tax inflation adjustments for tax year 2026.

Who actually does this work

We do not draft trust documents, form partnerships, value closely held interests, or prepare estate and gift tax returns. Those are the work of an estate attorney, a qualified appraiser, and a CPA, and the quality of that work matters enormously with these structures.

What we do is different and is often missing, in our experience. Someone has to hold the whole picture. What the family actually wants, what the plan already says, how a proposed structure interacts with retirement income and cashflow, what it does to the investment strategy, and whether the sequence makes sense. Specialists do their piece well. The gaps tend to appear between the pieces.

So read what follows as background for a conversation you will have with an attorney, not as a menu. The purpose is that you arrive at that conversation knowing what questions to ask.

Moving assets out at a reduced value

A family limited partnership, or a family LLC used the same way, is a structure where a senior family member contributes assets into a partnership and then transfers interests in it to family members over time, often while continuing to manage it.

The appeal is that an interest in a partnership can be worth less than the underlying assets it represents, because a minority holder cannot control the partnership and cannot readily sell the interest. Those two features support valuation discounts, which means a given transfer can use less of the lifetime exemption than transferring the assets directly would.

This is also the vehicle with the most litigation behind it. Courts have disallowed discounts where the partnership existed largely on paper, where the person who set it up did not observe its formalities, where personal and partnership assets were commingled, or where it was formed close to death without a business reason. The IRS has challenged these arrangements under the section of the tax code dealing with retained interests, and the outcomes have gone both ways depending on the facts.

The practical reading is that this is not a structure that works because it exists. It works when there is a genuine non tax reason for the partnership, when it is operated as a real entity year after year, and when the valuation is supported by a defensible appraisal. That is a substantial ongoing commitment, and whether it fits is a question for an estate attorney who does this regularly.

Planning across more than one generation

There is a separate tax aimed at transfers that skip a generation, such as a gift directly to a grandchild, so that wealth cannot pass down repeatedly without ever being taxed along the way. It has its own exemption, currently set at the same amount as the estate and gift exemption.

Families who want to provide for more than the next generation sometimes use a long term trust designed to hold assets across generations. When the generation skipping exemption is allocated to such a trust at the outset, the assets in it, including future growth, can remain outside the transfer tax at each generation rather than being taxed again each time.

Two details are worth carrying into a conversation with counsel. Unlike the estate exemption, the generation skipping exemption is not portable between spouses, so an unused amount is simply lost rather than inherited. And allocation is not automatic in every case, which means it has to be handled correctly on the relevant return at the time. Both are technical points, and both are places where mistakes are expensive and difficult to unwind.

Two ways to structure charitable giving

For families giving at scale, the question is usually not whether to give but through what structure. The two most common differ less in whether they work and more in how much control, privacy, and administration come with them.

Donor advised funds

A donor advised fund is an account held at a sponsoring public charity. You contribute assets, the contribution is complete at that point, and you then recommend grants to charities over time. Administration is handled by the sponsor, there is no separate tax return for you to file, setup is straightforward, and grants are not a matter of public record.

The tradeoffs are control and scope. The sponsor has legal authority over the assets and your role is advisory, even though in practice recommendations are typically followed. Grants generally go to qualifying public charities, which limits some kinds of giving, and investment options depend on what the sponsor offers.

Private foundations

A private foundation is a separate legal entity that the family controls. That control is the point. The family sets the mission, directs the grants, can involve later generations in running it, and has latitude that a donor advised fund does not offer.

It comes with substantially more obligation. A foundation files its own annual return, which is publicly available, meaning grants, financial detail, and compensation are visible. It faces rules restricting transactions between the foundation and the family, a required minimum annual distribution, and meaningful ongoing administrative cost. The charitable deduction treatment is also generally less favorable than for a donor advised fund, which is a point to work through with your CPA rather than assume in either direction.

Families sometimes use both, with a foundation for the visible, mission driven work and a donor advised fund alongside it for giving they would rather keep quiet.

What all of these have in common

Three things, and they are the ones worth sitting with.

They involve giving something up. Assets moved out of a taxable estate are genuinely gone, and the structures that make them gone for tax purposes are the same ones that make them gone for you. Any plan that has you retaining full benefit and control while the assets sit outside your estate is a plan that will not survive scrutiny.

They cost money and attention, every year. Legal fees to establish, appraisals, separate returns, and the discipline to operate an entity properly over decades. For an estate only modestly above the exemption, that ongoing cost can consume much of the benefit, which is a calculation worth doing honestly before starting.

And they are hard to reverse. These decisions are made once, usually under less time pressure than people assume, and then lived with. Which is the argument for deciding slowly, with everyone at the table, rather than in response to a deadline that turned out to be movable.

How this fits a plan

Everything here sits downstream of legacy planning, and that order matters. These are mechanisms, and a mechanism chosen before the intent is clear tends to produce a structure that works technically and satisfies nobody. What the family wants comes first. How to accomplish it comes second.

They also connect outward. Assets moved into these structures leave your balance sheet, which changes what remains to fund your own retirement and how the rest of the portfolio should be positioned. The documents that direct everything else still need to be current, which is the work covered in the estate plan review. And the timing of large transfers interacts with the rest of the tax picture in a given year.

Our role across all of it is the same one described earlier. We are not the drafter and not the filer. We are the ones making sure the pieces are sequenced sensibly, that they still reflect what you actually want, and that the specialists doing each piece are working from the same picture.