For High-Net-Worth Families: Advanced Strategies

Once your estate exceeds federal or state exemption thresholds, additional planning tools become available and necessary. The same revocable trust that works for most families still has its place. It's joined by irrevocable structures, gifting strategies, and tax planning that can preserve meaningful wealth for the next generation.

This guide walks through the four areas most relevant for high-net-worth families: where the tax thresholds sit today, how lifetime gifting works, what each major irrevocable trust does, and how to plan for the transition of a family business.

Estate Tax Thresholds: Federal and State

The first question for any high-net-worth family: where do you actually sit relative to the tax thresholds? The answer determines which strategies make sense and which ones are unnecessary complexity. The rules are changing, the numbers are moving, and what was a non-issue for many families a few years ago has become a meaningful planning concern.

The federal estate tax exemption

The federal estate and gift tax exemption is $15 million per individual ($30 million per married couple) as of 2026, made permanent under the One Big Beautiful Bill Act and indexed for inflation starting in 2027.

For estates above the exemption, the federal estate tax rate is 40% on the amount over the threshold. Married couples can combine exemptions through portability, but only if the surviving spouse files the right paperwork at the first death (a step many families miss).

The permanent expanded exemption means federal estate tax is now a concern primarily for the wealthiest families. For most clients, the focus has shifted toward income tax planning, basis adjustment at death, and state-level estate tax exposure.

State estate and inheritance taxes

Roughly a dozen states impose their own estate taxes, and a handful impose inheritance taxes. These are different, and the distinction matters.

Estate taxes are paid by the estate before assets are distributed. The tax is based on the total value of the estate.

Inheritance taxes are paid by the recipient after they receive their inheritance. The tax rate often depends on the recipient's relationship to the deceased (spouses and children are typically exempt or pay lower rates; distant relatives and non-relatives pay more).

As of 2026, the states that impose their own estate tax are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. State exemption thresholds vary widely: Oregon's threshold is $1 million; Connecticut conforms to the $15 million federal level; most states sit between $1 million and $7 million.

The states that impose an inheritance tax are: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. (Iowa is in the final stages of phasing out its inheritance tax and as of 2025 is effectively zero for most beneficiaries.) Maryland is the only state that imposes both an estate tax and an inheritance tax.

The generation-skipping transfer tax

For families thinking about leaving assets to grandchildren, directly or through trust, there's an additional tax to be aware of. The generation-skipping transfer tax (GSTT) applies to transfers that skip a generation, with its own $15 million exemption that runs alongside the estate and gift tax exemptions. Planning multi-generationally without thinking through the GSTT can produce some expensive surprises.

Lifetime Gifting: Reducing the Taxable Estate Over Time

For families likely to owe estate tax, lifetime gifting is one of the most effective ways to reduce the taxable estate over time. The mechanics are straightforward; the discipline is in doing it consistently and tracking it carefully.

The annual gift tax exclusion

You can give each individual recipient up to $19,000 per year (as of 2026, indexed for inflation) without using any of your lifetime exemption or filing a gift tax return.

For a married couple with three children and seven grandchildren, that's $38,000 per recipient (combining both spouses' exclusions) across 10 family members. Over a decade, that adds up to substantial movement of assets out of the taxable estate.

Using the lifetime exemption for larger gifts

Beyond the annual exclusion, you can make larger gifts during your lifetime that use up your federal estate and gift tax exemption. These larger gifts require a gift tax return but generally don't trigger tax until you've used up the full $15 million lifetime exemption.

The strategic question for families confident they'll owe estate tax: does gifting now, while the assets can grow outside your estate, make sense versus holding them and letting them appreciate inside the estate? Removing appreciating assets from the estate earlier in life can preserve significant wealth across generations.

Other tax-free transfer mechanisms

• Direct payment of medical expenses. Payments made directly to a medical provider on behalf of someone else don't count against the annual exclusion or lifetime exemption
• Direct payment of tuition. Same rule for tuition paid directly to an educational institution (covers tuition only, not room and board or fees)
• 529 plan contributions. Special rules allow 5 years of annual exclusion to be "front-loaded" into a 529 plan in a single year
• Spousal gifts. Gifts between US citizen spouses are unlimited and not taxable

Irrevocable Trusts: The Core Tools

For high-net-worth families, irrevocable trusts are the workhorses of advanced planning. Each one solves a different problem. Understanding what each does, and what it costs you in flexibility, is the foundation of choosing the right structure.

Irrevocable Life Insurance Trust (ILIT)

An ILIT owns your life insurance policy so the death benefit is excluded from your taxable estate, preserving the full proceeds for your heirs.

Life insurance death benefits are income-tax-free, but they're typically included in the taxable estate when you own the policy directly. For a family above the estate tax threshold, that can mean losing 40% of a multi-million-dollar policy to tax. An ILIT solves this: the trust owns the policy, the trust pays the premiums (often funded by annual exclusion gifts from you), and the trust distributes the death benefit outside the taxable estate.

Grantor Retained Annuity Trust (GRAT)

A GRAT lets you transfer appreciating assets to your heirs at a discounted gift tax cost. You receive annuity payments from the trust for a set term, and any growth above a set hurdle rate passes to your heirs gift-tax-free.

GRATs work especially well in environments with low interest rates and appreciating assets. A stock with significant upside, a closely-held business with growth potential, or any asset expected to outperform the IRS's hurdle rate (the "7520 rate") is a good GRAT candidate. The strategy has been called "heads I win, tails it's a wash." If the asset performs, the heirs win meaningfully; if it doesn't, you get the asset back through the annuity payments.

Spousal Lifetime Access Trust (SLAT)

A SLAT is an irrevocable trust where one spouse is the grantor (the person creating the trust) and the other spouse is a beneficiary. It removes assets from the taxable estate while still preserving the family's indirect access to the assets through the beneficiary spouse. SLATs remain popular for couples making meaningful use of the lifetime exemption while keeping flexibility through the beneficiary spouse.

Dynasty trust

A dynasty trust is a long-duration trust designed to pass wealth to multiple generations while minimizing transfer taxes at each generation. Properly structured, it can hold assets for grandchildren, great-grandchildren, and beyond, with the assets sheltered from estate tax at each generational transition. The duration depends on state law; some states (like South Dakota, Nevada, and Delaware) allow perpetual trusts, while others limit duration. The state where the trust is created matters significantly.

Charitable trusts (CRT and CLT)

For families with charitable intent and significant appreciated assets, charitable trusts can provide income, an income-tax deduction, estate tax reduction, and a meaningful gift to a chosen charity, depending on the structure. A charitable remainder trust (CRT) pays you income for a term and then gives the remainder to charity. A charitable lead trust (CLT) reverses it: the charity gets income for a term, and your heirs take the remainder. Each has its own tax mechanics and best-fit scenarios.

Business Succession & Family Business Transfers

For families whose wealth is concentrated in a closely-held business, succession planning is often the single most consequential element of the estate plan. Done well, it preserves the business, minimizes tax friction at the transfer, and gives the next generation (or a third-party buyer) a clean path forward. Done poorly, it forces a fire-sale, fractures the family, or both.

The main succession options

• Transfer to family members. Children or grandchildren take over the business, often with structured ownership and management transitions
• Sale to existing management or employees. Through a structured buyout or an Employee Stock Ownership Plan (ESOP)
• Sale to a third-party buyer. Strategic acquirer, financial buyer, or private equity
• Wind-down. For service businesses or those without succession candidates, an orderly wind-down may be the right answer

The right answer depends on whether you have qualified family successors, what the business is worth, and what tax tools are available to ease the transition.

Valuation discounts for family transfers

Gifts or sales of minority interests in closely-held businesses often qualify for valuation discounts. The IRS values them lower than a pure pro-rata share of the business, reducing the transfer tax cost.

Lack-of-control discounts and lack-of-marketability discounts (LOC and LOM) can combine to reduce the valuation of a transferred interest by 25-40% in many cases. This is one of the most powerful tools in family-business estate planning. It requires careful drafting, proper appraisals, and defensible structure.

Buy-sell agreements

A buy-sell agreement is a contract among business owners that controls what happens to ownership interests when an owner dies, becomes disabled, divorces, or otherwise exits. Well-drafted buy-sells set the price, the funding mechanism (often life insurance), and the trigger events, preventing the kind of family disputes and forced sales that derail otherwise-healthy businesses at exactly the worst moment.

Paying estate tax on a closely-held business

For estates where the business is the largest asset, paying estate tax can be a problem in itself: there's no liquid cash to pay it without selling the business. Several tools can help:

• IRC Section 6166. Allows an estate to pay tax attributable to a closely-held business over up to 14 years in installments
• Life insurance held in an ILIT can provide liquidity to pay tax without selling business interests
• Buy-sell funding. Same insurance approach within the business itself