Understanding Estate and Gift Taxes
The federal estate tax applies to estates that exceed the current exemption threshold (over $13 million per individual as of 2024). While most estates do not owe federal estate tax today, the exemption is scheduled to decrease significantly in 2026, which means planning now is critical for high-net-worth families.
Gift taxes and estate taxes are unified under the same lifetime exemption system. Strategic gifting during your lifetime can reduce the size of your taxable estate and transfer wealth to the next generation at a lower tax cost.
Key Tax Planning Strategies
Annual Gift Exclusion
You can give up to $18,000 per recipient per year (2024) without using any of your lifetime exemption. A married couple can give $36,000 per recipient annually.
Irrevocable Trusts
Irrevocable life insurance trusts (ILITs), spousal lifetime access trusts (SLATs), and grantor retained annuity trusts (GRATs) can remove assets from your taxable estate.
Charitable Giving
Charitable remainder trusts, donor-advised funds, and direct charitable bequests can reduce your taxable estate while supporting causes you care about.
Step-Up in Basis
Assets inherited at death receive a stepped-up cost basis, eliminating capital gains on appreciation during the decedent's lifetime. Proper planning can maximize this benefit.
Family Limited Partnerships
Transfer business or investment assets to family members at a discount while retaining management control, reducing the taxable value of your estate.
Generation-Skipping Transfers
Transfer assets directly to grandchildren or further descendants, skipping a generation of estate taxes using the generation-skipping transfer (GST) tax exemption.
The 2026 Sunset: Why Planning Now Matters
Exemption Cuts in Half
The current federal estate tax exemption of over $13 million per person is scheduled to revert to approximately $7 million (inflation-adjusted) after December 31, 2025.
Use It or Lose It
Gifts made before the sunset that use the higher exemption are not "clawed back" even if the exemption decreases. Acting now preserves the larger exemption.
Time to Plan Is Now
Complex trust structures and gifting strategies take time to implement properly. Waiting until late 2025 may not leave enough time to execute your plan effectively.
Frequently Asked Questions
Does Ohio have a state estate tax?
No. Ohio eliminated its state estate tax in 2013. Ohio residents are only subject to the federal estate tax.
What is the annual gift tax exclusion?
In 2024, you can give up to $18,000 per recipient per year without filing a gift tax return or using any of your lifetime exemption. This amount is adjusted for inflation periodically.
Are gifts to a spouse taxable?
Gifts between US citizen spouses are generally unlimited and not subject to gift tax due to the unlimited marital deduction. Different rules apply for non-citizen spouses.
What is the difference between the estate tax and inheritance tax?
The estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by the beneficiary who receives assets. Ohio has neither, but some states do have inheritance taxes.
Can I pay for a grandchild's tuition without using my gift tax exemption?
Yes. Direct payments to educational institutions for tuition (not room and board) are excluded from gift tax entirely and do not count against your annual exclusion or lifetime exemption.