Now that single taxpayers enjoy a $15 million estate and gift tax exemption ($30 million for married couples filing jointly) made permanent by the One Big Beautiful Bill Act (OBBBA), many high-net-worth families may be breathing a sigh of relief and moving estate planning to a mental “back burner.” On the other hand, while federal estate taxes are an important consideration, they aren’t the only thing that the estate plan for a high-net-worth family needs to take into consideration. So, now that the higher exemption amounts are stable (until and unless a future administration or Congress decides to change them), it may be time for high-net-worth families and their planners to focus on non-tax planning to protect assets from risks other than those posed by federal lawmakers.
With stable exemptions, what should high-net-worth families focus on now?
The wealth of highly affluent families can be vulnerable in several ways other than taxation. First and perhaps most obvious is the future risk of exceeding exemption thresholds. Even estates that are currently well below the tax threshold may experience growth exceeding the annual allowance for inflation, putting them at risk of incurring the 40% estate tax on amounts exceeding the federal limit.
Second, it’s important to remember that the federal government isn’t the only entity that taxes transfers of wealth between generations: 12 states and the District of Columbia also assess estate taxes (paid by the estate before distribution to heirs), and five other states collect inheritance taxes (paid by the heirs to the estate); the State of Maryland collects both. In some cases, the thresholds imposed by the states are considerably lower than the federal levels ($5 million in Vermont), and the marginal rates can run as high as 35% (the State of Washington). Depending on the place of residence for both grantors and recipients of estate proceeds, limiting the impact of state taxes may be an important planning component.
Finally, legal risks, both current and future, must be considered. For example, affluent families may wish to segregate assets earmarked for children or grandchildren from consideration as part of a marital estate. They may also need to build in protections against spendthrift or other irresponsible tendencies of current or future heirs. They may even desire to create greater protections against creditors, either now or in the future.
How can trusts limit tax exposure and support flexibility over generations?
Properly designed trusts can be useful tools, both for limiting the size of the taxable estate (and thus exercising better control over the impact of taxation) and for providing protection against various legal vulnerabilities. Trusts can also provide flexibility, since they can be designed with a wide variety of specific considerations in mind.
1. Generation-skipping trusts. Under this arrangement, assets contributed to the trust pass to the grandchildren of the grantor, bypassing the parents of the beneficiary(ies) and allowing the children of the grantor to avoid being taxed upon the grantor’s death. Note, however, that the federal lifetime estate and gift tax exclusion limitation still applies; if the assets in the trust exceed this threshold ($15 million for a single taxpayer in 2026, $30 million for a couple filing jointly, both adjusted annually for inflation), estate taxes could be levied on the value exceeding the exemption amount. These trusts can be useful for affluent families, effectively allowing assets to be transferred to grandchildren separately from any provisions made for their parents while reducing the size of the taxable estate.
2. Protective trusts. Many high-net-worth families may be concerned with keeping the estate’s assets out of the reach of creditors, either those of the grantor or creditors of their heirs. They may also wish to protect a child or grandchild from claims made by an ex-spouse on a marital estate. Protective trusts can address these and other needs, helping to insulate the estate from legal vulnerabilities. A protective trust for a beneficiary such as a child or grandchild can be included as part of a revocable or irrevocable trust designed to protect inherited assets from the actions of third parties or, in some cases, from the beneficiaries themselves.
For highly affluent families, lifetime trust planning and management may afford greater ability to manage the size of the taxable estate and also to protect the estate against certain non-tax-related contingencies. And, because the terms of trusts can be almost infinitely customized for the individual needs of the grantor and the beneficiaries, properly designed trusts can offer great flexibility, both for the grantor and for future generations of beneficiaries.
The Planning Center, as a fiduciary financial and wealth advisor, understands the importance of securing a financial legacy for children, grandchildren, and others. If you need answers to an estate planning problem, let us help.
