“The biggest difference between the inheritance and estate tax is who pays.”
You'll need a will if you own property, investments, or personal possessions and wish to pass them on to loved ones. While you’re creating an estate plan, you should also consider estate and inheritance taxes and how they may impact your legacy. According to a recent article from Go Banking, “Inheritance Tax 2025: Rates, Exemptions and How to Avoid It,” your estate may owe a tax to the state government even if it doesn’t rise to the current $13.9 million federal estate exemption now in effect.
There are still states requiring heirs to pay an inheritance tax. Those living in Pennsylvania, New Jersey, Nebraska, Maryland, or Kentucky would do their heirs a kindness by planning for inheritance taxes, so loved ones aren’t surprised.
If you’re leaving an inheritance, there are a number of ways to minimize or even avoid estate and inheritance taxes. Your estate planning attorney will be able to help you determine which methods work best for your situation. Here are some options:
Gifting. In 2025, everyone can give away as much as $19,000 to as many people as they want without paying gift taxes. Married couples can double this amount, making gifts to as many people as they wish.
You may give larger gifts to reduce the size of your taxable estate. However, they will be counted against your federal estate tax exemption. Many states don’t tax gifts made during your lifetime, especially those with inheritance taxes.
Trusts. Trusts are used to remove assets from your taxable estate, with different types of trusts used to accomplish different goals. An Irrevocable Trust will take assets out of your estate. However. you’ll need to give up control over the trust. Qualified Personal Residence Trusts (QPRTs) are used to transfer your home to beneficiaries at a lowered tax value. Bypass Trusts help married couples reduce exemptions for both spouses.
Trusts are complicated and need the experience of an estate planning attorney to make sure thay they are the right trust for your situation.
Charitable Giving. Donations to 501(c)(3) charities are exempt from both inheritance and estate taxes. There are several ways to make donations, including making donations through your will, giving while you’re alive, creating a charitable trust, or using Donor Advised Funds (DAFs).
Charitable Remainder Trusts provide an income stream to heirs for a certain period, and then the remainder goes to the charity. You might also consider a Charitable Lead Trust, where income goes to the charity for a set amount of time, then the remaining asset goes to the charity.
Meet with an experienced estate planning attorney in your area to learn your estate tax responsibilities and how to plan for them for yourself and your heirs.
Reference: Go Banking ( April 14, 2025) “Inheritance Tax 2025: Rates, Exemptions and How to Avoid It”
Comments