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Reducing federal estate taxes generally involves strategies that help reduce the taxable value of your estate, making it fall below the threshold for estate tax liability or lowering the taxable value of your estate. 

On the date of your death, if your estate exceeds the applicable exclusion amount, your estate may have to pay federal estate taxes.  The exclusion amount depends on the year of death. 

If an estate is subject to federal estate tax, the net value of the estate (gross value of the estate minus debts, charitable bequests, and final funeral and medical expenses) over the applicable exclusion amount is taxed.  

There are several different methods to reduce estate taxes. Below are some of the most popular techniques: 

  • Tax-free Gifts:  An individual can give up to $19,000 in 2025 to individual recipients without paying gift tax.  By giving your cash away, you reduce the size of your estate and the eventual estate tax bill.  In addition to the annual exclusion, you have a lifetime gift exemption of $13.99 million in 2025.  If you make gifts above the annual exclusion limit, the amount counts against the lifetime exemption.  

  • AB or ABC Trusts:  With this type of living trust, spouses leave their property in trust for their children, but give the surviving spouse the right to use property in the trust for life. This approach keeps the second spouse's taxable estate half the size it would be if the property were left entirely to the spouse.  For married couples, the use of basic AB Trusts or ABC Trusts in their estate plan can significantly reduce or even eliminate both federal (and state, where applicable) estate taxes assessed against their estates.

  • Life Insurance Trusts let you take the value of life insurance proceeds out of your estate. For married couples and individuals, the use of an Irrevocable Life Insurance Trust (ILIT) to hold and own life insurance offers two benefits: (1) life insurance owned by an ILIT will remove the value of the insurance proceeds from the insured's taxable estate; and (2) the insurance proceeds can provide immediate cash to pay bills, expenses and taxes.
  • Grantor Retained Annuity Trusts allow you to transfer assets to heirs with minimal gift tax consequences.

  • Charitable Trusts involve creating a charitable trust, such as a Charitable Remainder Trust, that gives you a charitable income tax deduction when the trust is funded and gives your estate a charitable estate tax deduction after you die. 

  • A Qualified Personal Residence Trust allows you to live in your home for a period of years and then the home will pass to your heirs at a reduced value for estate and gift tax purposes after the period ends.
  • A Spousal Transfer allows you to transfer assets to each other without triggering estate taxes due to the unlimited marital deduction. This only defers the estate tax liability until the surviving spouse dies. You may also consider using portability which allows the surviving spouse to claim the deceased spouse’s unused estate tax exemption, potentially doubling the exemption amount.
  • Contributions to a 529 College Savings Plan are not subject to federal estate taxes. You can fund a 529 plan with up to 5 years' worth of contributions all at once. That means an individual can contribute up to $95,000 per beneficiary in a single year to a particular 529 plan in 2025.  Double that limit for married couples.
  • Valuation Discounts - For family-owned businesses or real estate holdings, you may be able to apply valuation discounts for lack of control or marketability, which reduces the value of these assets when transferred to heirs.
     
  • A Qualified Personal Residence Trust allows you to transfer a personal residence to heirs but retain the right to live in it for a specified period. At the end of the trust term, the property passes to your heirs, and the value of the gift is reduced by the retained interest in the property.
     
  • Family Foundations - Creating a family foundation allows you to maintain control over how assets are distributed to beneficiaries (while supporting charitable causes) and can reduce estate taxes by removing assets from your estate.
  • A Dynasty Trust is designed to last for multiple generations and allows you to transfer wealth while avoiding estate taxes at each generation. These are especially useful in states with no generation-skipping transfer tax.