Estate Planning: A Tax-Smart Approach

Effective estate planning helps you protect your wealth, reduce tax burdens, and ensure your legacy is passed down efficiently. With the right strategies, you can safeguard your beneficiaries from unexpected taxes, preserve more of your estate, and align your plan with both your financial goals and personal values. Here’s a guide to some of the most effective estate planning tax strategies:

Maximize Retirement Account Contributions:

One effective tax-saving strategy for your estate is contributing to retirement accounts like IRAs and 401(k)s. Contributions to these accounts often help reduce your taxable income during your lifetime, and their value grows tax-deferred until retirement. However, these assets are subject to income tax upon withdrawal.

Additionally, Roth IRAs can be especially powerful in estate planning. While contributions to a Roth IRA are made with post-tax dollars, the growth is tax-free, as are qualified withdrawals. When passed to heirs, this account can continue to grow without incurring income taxes, making it an attractive option for leaving a legacy. Read more about retirement contribution limits here.

Utilize the Annual Gift Tax Exclusion:

Another strategy that will help reduce the size of your taxable estate is gifting assets to your heirs throughout your lifetime. The IRS permits you to give a certain amount each year to an individual without triggering gift taxes.

Under the One Big Beautiful Bill Act (OBBBA), the federal lifetime estate and gift tax exemption will permanently increase to $15 million per person beginning in 2026. For 2026, the annual gift tax exclusion remains at $19,000 per recipient ($38,000 for married couples through gift‑splitting). Gifts above the annual exclusion may require filing IRS Form 709 and could count toward your lifetime exemption. Remember to be aware of your state level estate and gift taxes, as these may vary significantly based on location. By taking advantage of the annual gift tax exclusion, you can gradually transfer wealth to your heirs while reducing the total value of your estate, potentially lowering estate tax liabilities in the future.

Leverage the Lifetime Gift Tax Exemption:

In addition to the annual gift tax exclusion, the IRS provides a lifetime gift tax exemption, which is a powerful tool for those with a sizeable estate. For 2026 the lifetime gift tax exemption is set at $15 million per person (subject to future changes). This means you can give up to this amount in total throughout your lifetime without activating gift taxes, though any amounts exceeding the annual exclusion will count against your lifetime exemption.

Consider Opening a Trust:

Irrevocable trusts, including Charitable Remainder Trusts and Charitable Lead Trusts, are useful tools for managing assets and distributing funds amongst your family members. These trusts are also excellent philanthropic vehicles, and can be helpful when gifting to your children, as they allow for greater donor control over assets.

• To operate a Charitable Remainder Trust, develop a plan to contribute assets and establish how frequently your beneficiaries will receive fixed and variable income. The balance will be transferred (or remain) to your selected charity or charities.
• The Charitable Lead Trust works in the opposite manner, providing regular cash flow to a chosen charity or charities for a set period. Once the set period ends, the remaining assets are distributed to your designated beneficiaries. Read more about charitable trusts here.

Plan for Generation-Skipping Transfers:

If you are hoping to allocate wealth to your grandchildren or great-grandchildren, you can take advantage of the generation-skipping transfer (GST) tax exemption. This strategy allows you to transfer assets directly to the next generation after your children, which can be especially beneficial if your children are financially secure or if you want to support multiple generations.

The GST tax exemption is separate from the gift and estate tax exemptions, and can be used to transfer up to $15 million in 2026 to multiple generations without incurring the GST tax. However, remember that careful planning is required to ensure the exemption is properly allocated to avoid generating unnecessary taxes.

State-Specific Strategies:

Estate tax laws may vary significantly by state, so it’s important to consider how your state treats estate taxes and plan accordingly. Some states offer specific tax exemptions for retirees, such as exclusions on Social Security benefits and pensions from taxable income. It's essential to research and understand the tax landscape of your potential new home state to assess financial viability.

Efficient estate planning is about much more than just drafting a will. By utilizing smart tax strategies like gifting, creating trusts, taking advantage of tax exemptions, and planning for charitable contributions, you can minimize the tax burden on your estate and ensure more of your wealth is passed to your heirs.

Contact an Oppenheimer Financial Professional here to learn more ways to save for your future.