Estate Tax Strategies That Go Beyond Exemptions

August 18, 2025

The lifetime federal gift and estate tax exemption has been a cornerstone of wealth transfer planning. However, with the exemption amount potentially being cut in half in 2026, relying solely on this threshold may no longer be enough to protect your estate¹ from significant taxation. Estate taxes could still consume a large portion of your assets if you don’t implement additional strategies. Fortunately, there are practical and effective ways to reduce your taxable estate and increase what your heirs ultimately receive. 

Beyond the Exemption: What’s Next? 

If you have already utilized your lifetime gift and estate tax exemption, it’s important to recognize that your estate¹ may still be subject to federal and possibly state estate taxes—often amounting to 40% or more of the estate’s value. This reality makes proactive planning essential to preserving your legacy and maximizing the value passed to your beneficiaries. 

Annual Exclusion Gifts: A Simple but Powerful Tool 

Even after exhausting your lifetime exemption, you can still make annual exclusion gifts. The IRS allows you to gift up to a certain amount per recipient each year without triggering gift taxes or counting against your exemption. By consistently using these annual exclusion gifts, you gradually reduce your taxable estate while supporting the financial futures of your children, grandchildren, or other loved ones. 

If you prefer, these gifts can be directed to properly structured trusts¹—such as irrevocable life insurance trusts (ILITs)¹ or spousal lifetime access trusts (SLATs)¹—which provide additional control and tax benefits. Consulting with your advisors to set up these vehicles can optimize your giving strategy. 

Direct Payments for Education and Medical Expenses 

Another valuable, often overlooked opportunity lies in making direct payments for education and medical expenses. Payments made directly to an educational institution for tuition, or to medical providers for qualified expenses, do not count as taxable gifts and do not reduce your exemption amount. This strategy can be used repeatedly without limit, providing meaningful support to your beneficiaries while reducing your estate’s taxable value. 

Timing Matters: Weighing Gift and Estate Taxes 

While you may not be able to eliminate estate taxes entirely, timing your gifts can make a significant difference. Gifts made during your lifetime are subject to gift tax rules, which differ from estate tax calculations. The federal government taxes estates based on the total value at death—including amounts used to pay estate taxes—whereas gift tax calculations exclude the tax amount itself. 

This distinction means that gifting assets during your lifetime may reduce your heirs’ tax burden by over 10%, and more if your state imposes estate taxes but not gift taxes. Navigating these complex rules requires expert advice to balance your tax liabilities and achieve your legacy goals. 

The Value of a Thoughtful Giving Strategy 

Incorporating gifting into your estate plan¹ not only reduces taxes but also enables your beneficiaries to use assets sooner—investing, growing wealth, and realizing opportunities well before inheritance. Whether it’s annual gifts, trust contributions, or direct payments for education and healthcare, each approach builds toward preserving and enhancing your family’s legacy. 

Working with Professionals 

Estate and gift tax planning involves intricate laws and personal circumstances. Engaging your financial advisors, tax professionals, and estate planners is crucial to crafting a comprehensive strategy that aligns with your goals and maximizes tax efficiency. 

Closing Thoughts

As the exemption landscape changes, a proactive and diversified approach to estate tax planning is more important than ever. By combining annual exclusion gifts, direct expense payments, and strategic lifetime giving, you can reduce your estate’s taxable value and help your heirs retain more of their inheritance. Start the conversation with your trusted advisors today to protect and grow your legacy. 

Disclaimer: Private banking services offered through First Western Trust Bank, Member FDIC 

1. Investment and Trust and Estate products and services are Not FDIC Insured, Not guaranteed by the Bank, May Lose Value 

This content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.