When we think about estate planning, we often focus on who will inherit what and how to ensure our loved ones are cared for. But another important part of the process is understanding how taxes may affect your estate and your beneficiaries. Without proper planning, a significant portion of your estate could go to taxes rather than to the people and causes you care about most. That’s why incorporating tax efficiency into your estate plan is essential — not just for high-net-worth individuals, but for anyone with real estate, retirement savings, or family heirlooms they want to pass on.

Let’s explore the key tax considerations that can influence your estate plan and how we can take proactive steps to reduce the burden.

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Overview of Federal Estate and Gift Tax Thresholds

The federal government imposes an estate tax on the value of assets transferred upon death, but only if your estate exceeds a certain threshold. As of 2025, the federal estate tax exemption is approximately $13 million per individual (subject to legislative changes). That means most estates won’t owe federal estate tax — but those that do can face rates as high as 40% on the portion that exceeds the exemption.

In addition to the estate tax, the federal government also has a gift tax, which applies to transfers made during your lifetime. However, there are key exclusions that can be used strategically:

• Annual gift tax exclusion: You can give up to $18,000 per recipient per year (2025 amount) without triggering gift tax.

• Lifetime gift tax exemption: Gifts exceeding the annual exclusion count against your lifetime limit, which is unified with the estate tax exemption.

Understanding how these exemptions work — and how lifetime gifts affect your estate — is a crucial part of long-term planning.

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State-Level Estate Taxes and How They Might Affect Your Plan

While many estates fall below the federal threshold, some states impose their own estate or inheritance taxes — and these can kick in at much lower levels.

If you live in a state like New York, Massachusetts, or Connecticut, your estate could be taxed even if it’s far below the federal exemption. These state estate tax exemptions often range from $1 million to $5 million, and the rates vary by state.

Here’s how this might impact your plan:

• Residency matters: Estate tax is generally determined by where you legally reside, but owning property in multiple states may subject your estate to additional scrutiny or tax filings.
  
  
• Relocation planning: For some, moving to a state without an estate tax later in life can significantly reduce the overall tax burden — but it’s important to establish clear residency for it to count.
  
  
• Proactive strategies: Techniques like gifting during your lifetime or using specific types of trusts can help minimize the state estate tax impact.

If you’re unsure whether your state imposes these taxes, or how your current estate would be affected, this is an area where legal guidance can really make a difference.

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How Trusts Can Help Manage or Reduce Tax Burdens

Trusts are powerful estate planning tools that can help reduce estate taxes, avoid probate, and control how assets are distributed after your death. When structured strategically, certain types of trusts offer meaningful tax advantages:

• Credit Shelter Trusts (also known as Bypass Trusts) allow couples to maximize their combined estate tax exemptions.

• Irrevocable Life Insurance Trusts (ILITs) remove life insurance proceeds from your taxable estate, while still providing for beneficiaries.

• Grantor Retained Annuity Trusts (GRATs) can be used to transfer appreciating assets while minimizing gift taxes.

• Charitable Remainder Trusts (CRTs) allow you to generate income during your lifetime and donate the remainder to charity, often resulting in both income and estate tax benefits.

The right trust structure depends on your specific goals, assets, and family dynamics. By incorporating trusts into your estate plan, we can ensure more of your legacy stays intact for your loved ones.

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Using Charitable Contributions for Tax-Efficient Planning

Philanthropy isn’t just a way to give back — it can also be a strategic component of your estate plan. Charitable giving can reduce the taxable value of your estate while supporting causes that matter to you.

Here are a few common approaches:

• Charitable Bequests: Leave a gift to a nonprofit in your will, reducing the size of your taxable estate.

• Donor-Advised Funds (DAFs): Make a charitable donation now, receive an immediate tax deduction, and distribute the funds to charities over time.
  

• Charitable Trusts: As mentioned above, CRTs and Charitable Lead Trusts (CLTs) can provide both income and estate tax benefits while supporting charitable organizations.

By aligning your estate planning with your charitable values, you can leave a meaningful legacy and reduce your family’s future tax burden.

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Strategies for Minimizing Taxes on Inherited Assets

It’s not just your estate that may be taxed — your beneficiaries could also face tax implications based on the type of assets they inherit. That’s why we focus not only on transferring wealth, but doing so in the most efficient way possible.

Some strategies include:

• Taking advantage of step-up in basis: Most inherited assets like stocks or real estate receive a step-up in cost basis, which can eliminate capital gains taxes if sold soon after inheritance.
  

• Using Roth IRAs for tax-free growth: Unlike traditional IRAs, Roth IRAs allow for tax-free withdrawals by heirs, which can be a significant advantage.

• Structuring inheritances thoughtfully: For example, it may be better to leave tax-deferred accounts to beneficiaries in lower income brackets to reduce income taxes on required distributions.

Reviewing your assets and how they’re titled — and understanding the tax consequences of each — helps ensure your beneficiaries aren’t left with an unexpected bill.

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Proactive Planning Protects Your Legacy

Understanding how taxes affect your estate plan is essential to making smart, informed decisions that protect your assets and your family’s future. The good news is that with proactive strategies and personalized guidance, it’s possible to significantly reduce or even eliminate certain tax burdens.

At Donohue, O’Connell & Riley, we help clients build tax-efficient estate plans that align with their financial goals and personal values. Whether you're just starting to plan or updating an existing estate plan, we're here to guide you through the process with clarity and care.

Contact Us to schedule a consultation and take the next step in protecting your legacy.

When we think about estate planning, we often focus on distributing assets or naming heirs. But for many families, an estate plan is just as much about ensuring care for the people who depend on us most—aging parents, disabled relatives, or even minor children. Thoughtful legal and financial planning can ease the burden on caregivers and provide protection and stability for dependents, both now and in the future. Whether you’re currently a caregiver or preparing for the possibility, estate planning gives you the tools to manage responsibilities with clarity and compassion.

Legal Planning for Aging Parents or Disabled Loved Ones

Caring for an elderly parent or a loved one with a disability can involve a host of decisions—from managing their medical care to handling finances and long-term housing. Incorporating this role into your estate plan helps ensure those needs continue to be met, even if you're no longer able to provide support yourself.

Key legal tools include:

• Advance directives and healthcare proxies for the person receiving care, so their medical wishes are clearly documented.
  

• Powers of attorney, which allow you or another trusted individual to manage legal and financial matters on their behalf.
  

• Special needs trusts, which can protect eligibility for public benefits like Medicaid or SSI while providing supplemental support.
  

• Guardianship designations, particularly when the person in your care may not be able to make legal decisions on their own.
  
  

Legal planning provides structure—and peace of mind—for both caregivers and dependents. It’s about ensuring no one is left navigating complex decisions without clear authority or direction.

Using Powers of Attorney and Guardianships to Manage Responsibilities

When caregiving is part of your life—or may become part of it—establishing clear authority through legal documents is essential. Powers of attorney and guardianship arrangements are two important tools that help manage responsibilities smoothly.

• A durable power of attorney gives someone you trust the authority to act on your behalf in financial and legal matters, even if you become incapacitated. This can be especially important if you're the caregiver and want to ensure someone else can step in seamlessly if needed.
  

• A healthcare proxy or medical power of attorney authorizes someone to make medical decisions for you or your loved one in the event you're unable to do so.
  

• In situations involving individuals with significant disabilities, legal guardianship may be necessary to manage decisions over time. This is often used when the person receiving care is unable to make or communicate informed decisions.
  
  

Each of these documents allows for continuity and clarity—both of which are critical when caring for someone else. Without them, even everyday tasks like paying bills, accessing medical records, or coordinating care can become difficult, if not impossible.

 

Financial Tools Like Trusts and Benefit Coordination

Beyond legal documents, estate planning offers several financial strategies to help caregivers manage costs and provide long-term security for dependents. One of the most flexible and protective tools is a trust.

Trusts can:

• Set aside funds for a loved one’s ongoing care and living expenses
  

• Appoint a trustee to manage assets if you’re unable or unavailable
  

• Provide for multiple beneficiaries over time, with clear instructions
  

• Preserve eligibility for important public benefits through special needs trusts
  

• Avoid probate, ensuring faster and more private access to necessary resources
  

Coordinating financial planning with benefit programs like Medicaid, Social Security, or veterans' benefits is also crucial. A poorly structured inheritance could unintentionally disqualify someone from the assistance they rely on. That’s why we take a holistic approach—ensuring your estate plan and financial strategy support, rather than jeopardize, your loved one’s well-being.

Planning for Continuity of Care in Your Absence

One of the most important aspects of estate planning for caregivers is preparing for the unexpected. If something were to happen to you, would your loved one’s care continue without disruption?

To ensure continuity:

• Clearly outline your caregiving role in writing, including routines, medical needs, medications, and preferred providers
  

• Identify and legally empower backup caregivers or decision-makers
  

• Make arrangements for short-term care while longer-term plans are put in place
  

• Fund a trust or savings account that can be accessed quickly to avoid delays in care
  

• Consider housing options, especially for individuals who need a stable living environment
  

By planning ahead, you help avoid crises and ensure your loved one isn’t left in a vulnerable position.

Communicating Responsibilities Clearly to All Involved Parties

Even the most carefully crafted plan can fall short if family members and caregivers aren’t on the same page. Clear communication plays a key role in reducing confusion and conflict, especially during emotionally charged times.

Here’s how to keep everyone informed:

• Hold family meetings to share your wishes, explain responsibilities, and introduce key documents
  

• Name roles explicitly in your plan—who will serve as power of attorney, trustee, guardian, or healthcare proxy
  

• Share access to important records, either physically or digitally, so others can step in if needed
  

• Review your plan periodically with all involved parties to ensure everyone understands their role
  
  

This kind of transparency not only protects your loved ones—it also helps prevent disputes, ensures smoother transitions, and reinforces your values and intentions.

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Peace of Mind for Everyone You Support

Being a caregiver is a profound responsibility—and it’s one that deserves thoughtful legal and financial support. Through estate planning, we can help you build a framework that protects your loved ones, empowers trusted individuals, and ensures care continues even in your absence. Whether you’re supporting an aging parent, a child with special needs, or anyone else who depends on you, having a plan in place brings confidence and relief.

Let’s work together to safeguard the people who matter most. Contact Us to schedule a consultation and take the next step toward securing their future—and your peace of mind.