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Most people do not think about taxes when the subject of death comes up, although the government always does. Estate tax enters the picture when property changes hands, and it rarely plays out in the way families imagine. In 2025 the rules shift again, and more households will be forced to do the tax math. The focus ends up less on who inherits and more on how much value gets trimmed away before the transfer is complete.
On paper it looks like a clean calculation. In practice it rarely feels that way. A house gets appraised higher than expected, a retirement account is counted in full, and even life insurance can land inside the total. By the time everything is added, the figure families thought they knew often looks very different.
In reality, the system is built with layers. Some families never owe a dollar, while others discover that even property they did not think of as taxable gets pulled into the total.
In 2025 the estate tax limit is just under fourteen million dollars for one person. A married couple that uses portability can stretch that protection to nearly twenty-eight million. Anything above that figure faces a forty percent federal tax.
It sounds like a number that only the wealthiest families need to worry about, and for now that is often true. The issue is that the current law does not lock this ceiling in place. At the end of 2025 it falls back to roughly six or seven million a person, once inflation adjustments are made. Families looking years ahead need to factor in that drop, because today’s wider margin may not last.
The estate calculation is broader than many realize. It includes homes, retirement accounts, business interests, investment portfolios, life insurance proceeds in certain cases, and even property held jointly. Families sometimes expect that a trust or beneficiary designation removes the asset entirely, only to find it still included for tax purposes.
Life insurance offers a clear example. If the deceased owned the policy at death, the full payout value gets added to the estate. For a large policy, that alone can push an estate above the exemption line. Ownership by an irrevocable trust changes the outcome, but that requires planning years in advance.
Most families hear about the federal numbers first, since they grab headlines. What often gets missed is that several states run their own estate or inheritance taxes, and those rules catch people off guard. Several states impose their own estate taxes, with exemptions far lower than the federal level. Others levy inheritance taxes, which apply directly to the beneficiary rather than the estate itself.
Take Maryland, where both estate and inheritance taxes exist. A child inheriting property there may face different treatment than a niece or nephew. The same estate in Florida would pass without state-level estate tax at all. Geography plays a bigger role than many anticipate.
Consider a family farm. Land values have climbed, yet cash flow often remains modest. When the owner dies, the estate value may tip over the exemption because of acreage, even if the family lacks liquid funds. To pay the estate tax, heirs might need to sell part of the land.
Business owners face a similar problem. Shares in a closely held company count toward the taxable estate, even if the heirs cannot immediately convert them to cash. The result is pressure to sell or borrow against the company to cover tax bills. In both examples, the family’s intent to keep assets intact clashes with the need to settle taxes quickly.
Families with estates near or above the exemption rely on a mix of strategies. Gifting during life remains one of the most direct methods. The annual gift exclusion allows transfers of up to $19,000 per recipient in 2025 without eating into the lifetime exemption. Larger gifts reduce the lifetime exemption but remove appreciation from the taxable estate.
Trusts also play a major role. Irrevocable life insurance trusts shift policy ownership away from the insured, removing future payouts from the estate. Grantor retained annuity trusts allow the creator to transfer assets expected to grow while keeping an income stream for a period of years. Family limited partnerships place business or investment interests under structured ownership that may qualify for valuation discounts.
Each of these tools requires precision and early action. Waiting until the year of death leaves little room to adjust.
The most pressing issue for families in 2025 is the scheduled reduction in the federal exemption. Unless laws change, estates above six to seven million per person will face tax exposure starting in 2026. That drop effectively doubles the number of families at risk.
Advisors are already urging clients to use the higher limits while they last. Strategies such as large lifetime gifts lock in today’s exemption, protecting wealth even after the threshold falls. Families that wait may find themselves trapped by lower limits with no retroactive relief.
Confusion around the rules is common. Many people still think the tax only applies to the very wealthy, which seems accurate under today’s high thresholds but becomes shaky once the exemption shrinks in 2026. Others mistake estate tax for income tax, assuming heirs only pay when they withdraw funds.
Another frequent error is treating a revocable trust as if it removes assets from view. Only irrevocable structures achieve that result, and without that distinction families leave gaps. These gaps in understanding create mistakes, and the problems often surface only when the estate is being settled.
A will alone may not protect against estate tax. Naming beneficiaries on accounts helps with probate but not always with tax. Families that treat estate planning as optional often leave heirs facing larger bills than necessary.
Estate tax rules shift from year to year, and families can get caught off guard. Guidance from someone who works with these rules every day can prevent mistakes that weaken a plan. For guidance built around your situation, reach out to ARQ Wealth and start shaping a plan that protects your family.
