Estate tax obligations can drastically alter an individual’s final legacy. Their executor or personal representative may need to use as much as 40% of the total value of their estate to cover their federal estate tax obligations.
Generally speaking, it is very difficult, if not impossible, to reduce estate tax obligations during the probate process. Instead, people need to address those obligations as part of the estate planning process before they pass.
How can testators who anticipate having multi-million dollar estates to pass down plan to minimize their future estate tax liability?
By funding a trust
Trusts are powerful estate planning tools. They allow the party funding the trust to control the distribution of their property after their passing. They also limit what assets become part of an estate and therefore the risk of estate taxes.
Transferring assets to a trust can reduce the value of an estate to less than the estate tax threshold, which is $13.99 million in 2025. People can move enough property to a trust to eliminate estate tax liability or to drastically reduce the tax rate that applies.
By taking on co-owners
Another common tactic used to reduce estate tax liability involves joint ownership of assets. In such cases, it is often possible to arrange for a co-owner to assume sole ownership of jointly-owned resources after the passing of one owner. Doing so keeps the property out of probate court and prevents it from contributing to the value of the estate.
There are other tactics people might employ, including strategic gifts and transfer-on-death paperwork filed directly with financial institutions, that can also help reduce estate tax risk. Discussing concerns with an estate planning attorney can help testators maximize what loved ones inherit and minimize the loss of resources during probate proceedings.
