Keep the Tax Cliff in Mind When Estate Planning- Estate planning is often focused on deciding who will receive property and how assets should be managed. Taxes can be just as important. A plan that works under one set of exemption amounts may produce a different result if tax laws change or an estate is subject to state-level taxation.
Families with substantial assets should, therefore, consider both current rules and the possibility of future changes. The goal is not necessarily to restructure an estate around every proposed tax change, but to understand where a tax change could affect the plan.
The federal estate tax applies only to estates above a certain exemption amount, and federal law has historically changed that exemption. State estate taxes operate separately, and some states impose them at substantially lower thresholds.
That means a family may have no federal estate tax exposure, while still facing a state estate or inheritance tax. Where someone lives, where real estate is located and how property is owned can all affect the analysis.
For families with significant assets, identifying potential state tax exposure matters, especially when considering a move to another state or owning property in multiple jurisdictions.
Estate tax planning becomes more difficult when lawmakers change exemption amounts, tax rates, or other provisions. A plan designed around today's rules may need revisiting if the tax environment changes.
This does not mean every estate needs an elaborate tax strategy. The appropriate approach depends on the size and nature of the estate, the family's goals and the laws that apply to the assets and beneficiaries.
Regular reviews can help identify whether an existing plan still accomplishes its intended purpose.
Calculating potential estate tax exposure involves more than looking at the balance of a checking or investment account. Real estate, business interests, retirement accounts, life insurance and other property can add to an estate's overall value.
Ownership also matters. Assets held jointly, placed in trusts, or transferred during life may be treated differently depending on the circumstances.
Families should therefore consider their entire financial picture rather than looking at individual accounts in isolation. For example, a change in the value of a business or investment portfolio could alter the estate's potential tax exposure without any change to the estate planning documents themselves.
Lifetime gifts can be part of an estate planning strategy, particularly when a person wants to transfer assets while alive or remove future appreciation from an estate.
However, gifting can involve its own tax and legal considerations. Giving away an asset may affect the donor's finances, the recipient's tax basis, eligibility for certain benefits and the overall estate plan.
The objective should be to coordinate lifetime transfers with the person's broader financial and estate planning goals rather than making gifts solely because a tax rule appears favorable.
Tax law can create urgency, especially when a major exemption or other provision is scheduled to change. However, estate planning should address more than taxes.
A good plan should also account for incapacity, family circumstances, charitable intentions, asset management and how beneficiaries will receive their inheritance. A tax-efficient arrangement that doesn't support the family's broader objectives may not accomplish what the person wants.
The best time to identify these issues is before a tax deadline or major life event forces a rushed decision.
Tax uncertainty is one reason estate plans should not be treated as permanent documents. Changes in federal or state law can justify a review, as can changes in family circumstances, wealth, residence, or the nature of a person's assets.
Regular reviews allow families to distinguish between provisions that genuinely need to change and those that remain appropriate. They also make it easier to coordinate wills, trusts, beneficiary designations and asset ownership.
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Keep the Tax Cliff in Mind When Estate Planning
Reference: USA Today (February 25, 2026) "Don't go over the tax cliff. State estate tax may kill inheritances"
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