Most people assume the estate tax does not apply to them. Some of them are wrong.

The federal estate tax has a threshold high enough that most American families will never encounter it. At $15 million per individual, it affects a small percentage of estates, but that percentage covers a lot of ground in Arizona.

A business owner with a growing company, a family with significant real estate holdings, a professional with substantial retirement accounts and life insurance. These situations add up faster than most people expect. Life insurance death benefits paid to your estate, retirement accounts, business interests valued at fair market value, and real estate that has appreciated over decades all count toward the total. Most people who sit down and actually do the math find a larger number than they anticipated.

Does the estate tax apply to you?

Answering that question requires adding up your full estate value, which most people have never done carefully. The calculation includes your home and any other real estate, investment and brokerage accounts, retirement accounts, business interests at fair market value, and the face value of any life insurance policies you own personally.

That last item surprises people regularly. A $2 million life insurance policy owned by the insured counts toward the taxable estate. A business interest that feels illiquid on paper still carries a valuation for estate tax purposes. If you own real estate in multiple states, those assets count too.

If your total estate sits between $7 million and $15 million, you are in a planning zone worth paying attention to. Assets appreciate, businesses grow, and what does not cross the threshold today might in ten years. Above $15 million, active planning is not optional.

The math above the threshold

Estates above $15 million per individual face a 40 percent federal tax rate on the excess. For a married couple with a combined estate of $40 million, roughly $10 million remains exposed without active planning.

The exemption is permanent under current law and indexed for inflation, which provides more planning certainty than families have had in years. But permanent in tax law means permanent until Congress changes it. The current exemption is high by historical standards, and a future administration or shift in Congress could reduce it. Gifts made today using the current exemption are protected. The IRS has confirmed that taxable gifts made during a higher exemption period are not clawed back if the exemption decreases later. That protection only applies to action taken before any change occurs, not after.

Tools we use

Annual Gifting Strategies. Every individual can give up to $19,000 per recipient per year without using any of their lifetime exemption. For a married couple with several adult children and grandchildren, systematic annual gifting moves meaningful wealth out of the taxable estate over time.

Spousal Portability Elections. When a spouse dies, any unused portion of their federal estate tax exemption can be transferred to the surviving spouse through a portability election. This election must be made on a timely filed federal estate tax return, even if no estate tax is owed at the first death. Missing the deadline forfeits the unused exemption permanently.

Irrevocable Life Insurance Trusts. Life insurance owned by the insured counts toward the taxable estate. An ILIT owns the policy instead, keeping the death benefit outside the estate entirely. For clients with significant life insurance coverage, this structural change is often the highest single-value adjustment available.

Grantor Retained Annuity Trusts. A GRAT transfers appreciating assets out of your estate at a low gift tax cost. You fund the trust, receive an annuity payment back for a fixed term, and whatever growth exceeds the IRS hurdle rate passes to beneficiaries free of gift tax at the end of the term. Business interests, concentrated stock positions, and real estate in growth markets are common candidates.

Charitable Remainder Trusts. A CRT allows you to transfer appreciated assets into a trust, receive an income stream for life or a fixed term, take a partial charitable deduction, and pass the remainder to a designated charity.

Dynasty Trusts. A dynasty trust holds assets across multiple generations, keeping wealth in trust and protected from estate taxes, creditors, and divorcing spouses at each generational level. The GST exemption matches the estate tax exemption at $15 million per person, which makes dynasty trust funding more attractive than it has been in years. Arizona's favorable trust laws support these structures well.

Arizona has no estate tax

Arizona repealed its state estate tax in 2005. Arizona residents face only the federal estate tax. This matters for clients who own property in other states. Oregon, Massachusetts, Washington, and several others impose their own estate taxes at thresholds well below the federal level. If you own real estate or significant assets in another state, that state's rules apply to those assets.

Working with your financial team

Estate tax planning intersects with your investment strategy, business valuation, insurance coverage, and charitable goals. We work alongside your financial advisor, CPA, and insurance professional to make sure the legal structures we put in place align with your overall financial picture. If you do not have those advisors in place, we can refer you to professionals we trust.