CONTRIBUTORS
Bill Cass, CFP®, CPWA®
Director of Wealth Planning,
Franklin Templeton
As a result of the One Big Beautiful Bill Act, the lifetime exclusion for gifts and estates will increase permanently to $15 million this year with annual inflation adjustments to follow. While clarity on the rules is helpful, action is needed to make sure wealth transfer plans are designed correctly.
Here are four estate planning strategies to consider that could maximize a plan’s tax efficiency.
Review estate planning documents and strategies
The increase in the “now-permanent” lifetime exclusion amount for gifts and estates ($15,000,000 per individual in 2026) may have unintended consequences for some individuals and families with wealth under that threshold. They may think that they do not have to plan for their estate. However, taxes are just one facet of estate planning. It is still critical to plan for an orderly transfer of assets or for unforeseen circumstances such as incapacitation. Strategies to consider include proper beneficiary designations on retirement accounts and insurance contracts, wills, powers of attorney, health care directives and revocable trusts. Additionally, existing trusts should be reviewed to determine if changes are needed as a result of the recent tax law changes.
Plan for the 10-year rule on inherited IRAs
Since most non-spouse beneficiaries will have to liquidate inherited IRAs within 10 years following the death of the account owner and likely pay taxes upon distribution, there may be strategies to transfer retirement savings in a tax-smart manner to the next generation. For example, consider naming heirs who are more likely to be in lower tax brackets as IRA beneficiaries. Or, it may make more sense for IRA owners to spend down, donate, or convert more of their IRA assets while they are living instead of passing assets to heirs upon their death. In the case of a Roth IRA conversion, this may be more efficient, tax-wise if the IRA owner is likely to be in a lower tax bracket than their heirs.
Plan for potential state estate taxes
While much attention is focused on the federal estate tax, certain residents need to know that many states have estate or inheritance taxes. There are a number of states that are “decoupled” from the federal estate tax system. This means the state applies different tax rates or exemption amounts. A taxpayer may have net worth comfortably below the $15,000,000 exemption amount for federal estate taxes, but may be well above the exemption amount for their particular state. In fact, Oregon residents may face state taxes if their estate is valued at more than $1 million, and Massachusetts residents may face state taxes if their estate is more than $2 million.1 Real estate and retirement savings alone may easily push individuals above these thresholds. One option may be a properly structured life insurance strategy, which can provide liquidity to heirs to pay these types of taxes, while avoiding the liquidation of other assets like family real estate or business interests. It is important to consult with an attorney on specific state law and potential options to mitigate state estate or inheritance taxes.
Develop a strategy for low cost-basis assets
Given the very high gift and estate lifetime exclusion of $15 million per person, a strategy to take advantage of step-up in cost basis on certain property transferred at death is more relevant for most families. The overwhelming majority of estates will not be subject to federal estate taxes. In many cases, efficient transfer of assets from an income tax perspective is more important. For example, careful consideration should be made around lifetime gifts to family members that may jeopardize a step-up in cost basis on property at death. When property is gifted, the party receiving the gift generally assumes the original cost basis, including potential exposure to capital gains taxes upon sale of the property. For those wishing to gift assets inside of an irrevocable trust, there may be certain provisions that may be utilized to ensure that property receives a step-up in cost basis at death. Those looking to transfer wealth should have an in-depth consultation with a qualified estate planning professional that addresses potential consequences of certain strategies on step-up in cost basis at death.
Seek advice
Consult a qualified tax or legal professional and financial advisor to discuss these strategies to prepare for the risk of higher taxes in the future. Personal circumstances vary widely, so it is critical to work with a professional who has knowledge of your financial situation.
For more planning strategies, see “Ten income and estate tax planning strategies for 2026.”
Endnote
- Tax Foundation, “Does your state have an estate or inheritance tax?” October 2025.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.
Franklin Templeton, its affiliated companies, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.