A new era of wealth transfer presents a massive need for secure legacy planning strategies for those looking to leave behind an inheritance.
Key takeaways:
- Despite stopping a reduction to the federal estate tax exemption, recent legislative changes seeking to cut federal costs may cause some states to increase their estate or inheritance taxes.
- The intersection of estate taxes at the federal and state level can be complex, and lower exemption thresholds in many states could put middle-class and high-net-worth individuals equally at risk.
- Strategies like trust structuring, lifetime gifting, and life insurance premium financing can help your clients, where appropriate, to help protect their legacy and transfer it to their beneficiaries intact.
The coming decades will witness the most significant intergenerational wealth transfer in history, with upwards of $124 trillion in wealth expected to change hands. Your role as a financial professional during this Great Wealth Transfer will be more than just discussing products for high-net-worth clients but helping to safeguard their legacy so that they can pass it on to the next generation.
Unfortunately, recent federal spending cuts may prompt some subnational governments to seek out other ways to supplement that revenue through taxation. Estate taxes have been singled out as potential targets of rate increases, which would make the need for innovative, proactive legacy planning strategies more urgent than ever.
Shifting landscapes at the state level
Recently enacted legislative measures, including the One Big, Beautiful Bill Act (OBBB) and the Trump Administration’s Fiscal Year (2026) budget request, have signaled an intention by the federal government to reduce costs at the national level. This move passes that cost (estimated at $1 trillion over ten years) to county and state governments, which may have to choose between cutting services or raising taxes.
One potential tax rate that could increase is the estate tax, sometimes called the “death tax.” While the OBBB stopped the exemption from lowering the rate to $7 million per person in 2026, a federal estate tax will still apply to any estate valued over $13.99 million. But in addition to the federal estate tax, twelve states (including New York and Illinois) apply state-level estate and inheritance taxes that could jeopardize the financial legacy that your clients have spent years building for future generations.
Furthermore, state estate taxes may have an impact beyond high-net-worth or ultra-high-net-worth clients. Rates typically range between 10% and 20% and exemption amounts can vary widely from state to state. While most of them land around $3 – 5 million, in Oregon, for example, rates of 10 – 16% apply to any inheritance over $1 million. Any increase in these state-level taxes could cause more people to require the help of a knowledgeable financial professional to protect their legacies.
Strategies for legacy protection
The intersection of state and federal estate and inheritance taxes can be very complex, and the standard strategies used to reduce or avoid federal estate taxes may not be sufficient to protect your client’s wealth transfer fully.
As a financial professional, you can provide the valuable solutions that your clients need to protect and pass on their financial legacy. If you do not have the necessary qualifications or registrations to offer a full range of services, you can partner with other tax advisors and attorneys to offer the following services:
- Irrevocable life insurance trusts: Irrevocable life trusts provide a vehicle for heirs to cover estate taxes. The benefit from a life insurance policy owned by the trust will not be included in the taxable estate, giving flexibility and liquidity to the beneficiaries without increasing the tax liability of the estate itself.
- Spousal lifetime access trusts: These financial tools allow one spouse to transfer assets into a trust with the other spouse as beneficiary. This effectively removes those funds from the taxable estate while still providing for a spouse.
- Strategic gifting: Trusts like those above are powerful vehicles for strategically reducing the tax liability of an estate, but lifetime gifting is another valuable tool for tax-efficient wealth transfer planning. Using lifetime gifts to transfer appreciating assets to heirs before they grow further in value can help keep estates under state exemption thresholds.
- Life insurance premium financing: This innovative approach uses leverage in a way that provides flexibility and risk mitigation to enhance life policy ownership. Life premium financing methods, like the Capital Maximization Strategy℠ developed by Succession Capital Alliance, finance life policy premiums through a custom loan tailored to your client’s unique wealth transfer goals, such as reducing immediate out-of-pocket costs, increasing the policy’s death benefit, and mitigating gift tax exposure.
Next steps to elevate your approach
With some state estate taxes expected to rise in the coming years, it’s more important than ever to proactively address your clients’ legacy planning challenges and offer advanced solutions to help ensure their wealth transfer is protected.
Help your clients have their existing estate plans and trust structures carefully evaluate for state-specific strategies for legacy protection and evaluate timing opportunities for wealth transfers, especially when asset appreciation risks push their estate over the state exemption limit. Your assistance with comprehensive solutions can help protect your clients’ legacy through whatever legislative changes may come.
