An estate plan is often thought of as a set of legal documents: a will, a trust, powers of attorney. Behind those documents sits a set of tax rules that can shape how much of your wealth reaches the people and causes you care about. Estate tax, gift tax, generation-skipping transfer tax, and income tax on inherited assets all play a role.
An estate planning tax advisor helps you understand how those taxes apply to your situation and how different planning choices may affect them. This guide explains the main taxes involved, the concepts families often discuss, and how tax advisors, attorneys, and financial advisors divide the work.
The Taxes That Affect an Estate Plan
Federal Estate Tax
The federal estate tax applies to the value of assets transferred at death above an exemption amount. Legislation passed in 2025 set a higher exemption beginning in 2026 that is indexed for inflation. Amounts above the exemption are generally taxed at a maximum federal rate of 40%.
Federal Gift Tax
Gifts during life are subject to a unified system with the estate tax. Annual exclusion gifts are not counted against your lifetime exemption, and annual limits apply. Larger gifts use part of the lifetime exemption and may require filing a gift tax return.
Generation-Skipping Transfer Tax
Transfers to grandchildren or others more than one generation below you can be subject to an additional tax, with its own exemption. Trusts designed to last for multiple generations often involve careful allocation of that exemption.
Income Tax on Inherited Assets
Under current law, many assets held until death receive a step-up in cost basis to their value at the date of death. That can reduce capital gains tax for heirs who later sell. Assets given during life generally keep the donor's original basis. Pretax retirement accounts do not receive a step-up, and heirs generally pay income tax on withdrawals.
State Estate and Inheritance Taxes
California does not currently have a state estate or inheritance tax. Some other states do, and families with property in more than one state may need to consider those rules.
Key Concepts Families Discuss
Portability
If one spouse dies without using all of their federal estate tax exemption, the surviving spouse may be able to use the unused amount. This generally requires filing an estate tax return on time, even if no tax is due.
The Marital Deduction
Transfers between spouses who are U.S. citizens are generally not subject to estate or gift tax. Special rules apply when a spouse is not a U.S. citizen.
Lifetime Gifting
Gifts during life can move future appreciation out of an estate. The tradeoff is the loss of a basis step-up on gifted assets, so families often weigh estate tax savings against potential future income tax for heirs.
Valuation
The value of assets at the time of transfer drives the tax result. Business interests, real estate, and private investments generally require qualified appraisals, and discounts for lack of control or marketability may apply in some cases.
Trust Planning
Many types of trusts serve tax and non-tax goals. Examples families discuss with their attorneys include irrevocable trusts that remove assets from the estate, grantor retained annuity trusts, spousal lifetime access trusts, and generation-skipping trusts. Each has specific rules and tradeoffs.
Charitable Planning
Bequests to charity are generally deductible for estate tax purposes. Charitable trusts and donor-advised funds can also be part of a plan. Leaving pretax retirement accounts to charity, and other assets to family, is one approach some families consider.
Trust Income Taxes
Irrevocable nongrantor trusts pay income tax on retained income, and they reach the highest federal bracket at a much lower level of income than individuals do. Distribution decisions can affect the total tax paid by the trust and its beneficiaries.
Who Does What on the Estate Planning Team
Estate planning attorney: Gives legal advice, drafts wills, trusts, and transfer documents, and handles legal requirements.
Estate planning tax advisor: Typically a CPA or tax attorney who models estate, gift, GST, and income tax effects, prepares gift and estate tax returns, and advises on trust taxation.
Financial advisor: Helps coordinate investments, beneficiary designations, cash flow, and liquidity with the estate plan, and helps track whether trusts are funded.
Appraiser: Provides valuations of business interests, real estate, and other hard-to-value assets.
Trustee or executor: Carries out the plan, files returns, and makes distributions.
Liquidity for Estate Taxes
Estate taxes are generally due nine months after death. Estates holding mostly illiquid assets, such as a business or real estate, may need cash to pay taxes and expenses. Life insurance held in an irrevocable trust, cash reserves, and, for certain closely held businesses, provisions that allow estate tax to be paid over time are approaches families review.
Keeping Records That Support the Plan
Tax outcomes often depend on records. Copies of prior gift tax returns, appraisals, trust documents, and cost basis information for long-held assets can help your tax advisor calculate how much exemption has been used and what heirs will owe when they sell. Storing these records where your executor or trustee can find them can make administration smoother.
Questions to Ask an Estate Planning Tax Advisor
What is my potential estate tax exposure? Ask for an estimate under current law and under different scenarios.
How would lifetime gifts change the picture? Compare estate tax savings with the loss of basis step-up.
Have we preserved portability? Confirm that estate tax returns were filed where needed.
How are my trusts taxed? Understand the income tax treatment of each trust.
What returns will be required? Gift, estate, and trust returns each have deadlines.
How does state law affect the plan? Consider property and residency in other states.
Reviewing Your Plan as Laws Change
Estate tax law has changed several times in recent decades, and future changes are possible. Reviews are often useful when laws change, when asset values shift meaningfully, after a move, and after births, deaths, marriages, or divorces in the family. Our article on the cost of waiting looks at why some planning decisions can become more costly when postponed.
How Auric Supports Estate Planning
Auric Capital Partners' estate planning service is built around collaborating with your legal professionals so your wishes can be carried out across generations, and its multigenerational planning work helps families think about how wealth moves to the next generation. Auric does not draft legal documents or prepare tax returns. Instead, the firm works alongside your attorney and CPA to coordinate investment accounts, beneficiary designations, and liquidity with the plan they design.
For families in transition, business owners, and retirees with several advisors, that coordination can help keep the plan and the accounts that support it in sync. Explore the firm's services.
Schedule a Conversation
If you want to understand how taxes may affect your estate plan and how your investments fit with it, we invite you to schedule a conversation. No scripts, no pressure.
Frequently Asked Questions
What does an estate planning tax advisor do?
An estate planning tax advisor, often a CPA or tax attorney, models estate, gift, generation-skipping, and income tax effects of transfers, prepares related tax returns, and works with your estate attorney on plan design.
Does California have an estate tax?
California does not currently have a state estate or inheritance tax. Federal estate tax may still apply to estates above the federal exemption.
What is the step-up in basis?
Under current law, many assets held until death receive a new cost basis equal to their value at death, which can reduce capital gains tax for heirs who sell them later.
What is portability of the estate tax exemption?
Portability allows a surviving spouse to use a deceased spouse's unused federal estate tax exemption, generally if a timely estate tax return is filed.
Do I need to file a gift tax return?
A gift tax return is generally required for gifts to one person above the annual exclusion in a year, even if no tax is owed. Your tax advisor can confirm filing requirements.
This content is for educational and informational purposes only and should not be considered investment, tax, or legal advice. It is not a recommendation to buy or sell any security or to adopt any particular investment strategy. Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results, and no strategy can guarantee a profit or protect against loss. Please consult with a qualified professional about your individual situation. Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Adviser. Auric Capital Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.
