What Do High Net Worth Families Need to Know About Estate Taxes?
Last reviewed: July 2026
Estate tax planning for high net worth families means using gifting, trusts, and ownership structures to move wealth to the next generation while minimizing federal and state estate taxes. The federal exemption is now $15 million per person in 2026, but state estate taxes, asset protection, and family coordination still demand a real plan. If your only estate planning was a will you signed years ago, you have gaps that could cost your heirs hundreds of thousands of dollars.
Key Takeaways
- The federal estate tax exemption is $15 million per person in 2026, or $30 million for a married couple.
- Maryland taxes estates above $5 million, so families well under the federal limit can still owe state estate tax.
- The annual gift tax exclusion is $19,000 per recipient in 2026, letting couples gift $38,000 per person tax-free.
- Beneficiary designations override your will, so an outdated form can send assets to the wrong person.
- Trusts like ILITs and GRATs move assets out of your taxable estate while keeping control over how wealth passes.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate estate tax planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. As an Accredited Estate Planner, Jeff sees the same pattern constantly: families fixate on the federal exemption and completely miss the state estate tax bill waiting for them.
Do High Net Worth Families Still Need Estate Tax Planning in 2026?
Yes. A high federal exemption does not eliminate the need for estate tax planning. The federal estate tax exemption sits at $15 million per individual in 2026 under the One Big Beautiful Bill Act, and married couples can shield $30 million combined. According to the IRS, estates above the exemption face a top federal rate of 40%.
Most families I work with are below that federal line. That does not mean they are off the hook. Three things still drive the need for planning.
First, state estate taxes. Many states tax estates at a far lower threshold than the federal government. Second, asset protection. Trusts and the way you title property shield assets from creditors, lawsuits, and a beneficiary's bad marriage. Third, family coordination. Without clear instructions, an inheritance becomes a probate fight that drains the estate and fractures the family.
Jeff Judge often tells clients that the federal exemption is the headline number that distracts people from the bill they will actually owe. The planning question is rarely "will the IRS take a cut" for families in the $2 million to $8 million range. It is "what does my state want, and have I titled things correctly."
How Does Maryland's Estate Tax Affect Your Plan?
Maryland taxes estates above $5 million per person, far below the federal $15 million exemption. If you live in Maryland with a $6 million estate, you owe no federal estate tax but you will owe Maryland estate tax on the amount above $5 million. According to the Comptroller of Maryland, the state estate tax rate tops out at 16%.
Maryland is one of the states where high net worth estate planning has to account for two separate tax systems. Other states with their own estate or inheritance taxes include Connecticut, Illinois, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington, according to the Tax Foundation.
For Maryland families, this is where wealth transfer planning earns its keep. A married couple can structure their plan to use both spouses' $5 million state exemptions, effectively protecting up to $10 million from Maryland estate tax. Skip that structuring, and you can waste an entire spouse's exemption.
Maryland also has a separate inheritance tax that applies to certain non-lineal heirs. If you plan to leave assets to a sibling, niece, nephew, or friend, that tax can take a 10% bite. For a deeper look at who pays it, see Who owes Maryland's 10% inheritance tax and what planning options protect non-lineal heirs?.
What Estate Planning Gaps Cost Families the Most?
The most expensive estate planning gaps are outdated beneficiary designations, missing trust structures, ignored state tax thresholds, and absent powers of attorney. Each one quietly undermines an otherwise solid plan, and most families do not discover the problem until it is too late to fix.
Your 401(k), IRA, and life insurance beneficiary forms override your will. If you named an ex-spouse in 2009 and never updated the form, your ex inherits, not your current spouse or children. Review these forms after every marriage, divorce, birth, and death. For the post-divorce checklist, see Do I need to update my beneficiary designations after a divorce or major life change?.
Wills go through probate, which is public, slow, and costly. A revocable living trust avoids probate, keeps your affairs private, and gives clear instructions for distribution. For families with minor children, special needs dependents, or heirs who are not ready to manage money, a trust provides control a will cannot. Families raising a child with disabilities should also review How Do I Leave Money to a Disabled Child Without Losing Benefits?.
Powers of attorney and healthcare directives matter while you are alive. Without durable financial and healthcare powers of attorney, your family may need a court to authorize decisions if you become incapacitated. For the basics, see What Is a Financial Power of Attorney and Why Do I Need One?.
What Advanced Strategies Reduce Estate Taxes for Wealthy Families?
The most effective estate planning strategies for high net worth families combine annual gifting, irrevocable life insurance trusts, grantor retained annuity trusts, and charitable trusts. Each one moves assets out of your taxable estate while serving a different goal, from shrinking the estate to funding a legacy. These work best once the basics are in place.
The annual gift tax exclusion lets you give $19,000 per recipient in 2026 without touching your lifetime exemption, according to the IRS. A married couple can gift $38,000 per recipient. Systematic gifting to children and grandchildren shrinks your taxable estate and lets you watch your beneficiaries use the money during your lifetime.
An irrevocable life insurance trust, or ILIT, removes life insurance from your taxable estate. Death benefits are income-tax-free, but they are included in your estate unless an ILIT owns the policy. For families with large policies, the estate tax savings can be substantial.
Here is how the main advanced tools compare:
| Strategy | Primary Goal | Best Fit |
|---|---|---|
| Annual gifting | Shrink the estate steadily | Families wanting simple, flexible transfers |
| ILIT | Remove life insurance from the estate | Large life insurance policies |
| GRAT | Transfer appreciation at low gift-tax cost | Business owners, fast-appreciating assets |
| Charitable remainder trust | Income now, legacy later | Philanthropically minded families |
A grantor retained annuity trust, or GRAT, transfers appreciating assets to heirs while minimizing gift tax. You keep an annuity payment for a set term, and the growth passes to beneficiaries. GRATs shine for business owners expecting their company value to climb. A charitable remainder trust pairs lifetime income with an income tax deduction and a charitable legacy. To weave giving into the broader plan, review What Are the Best Tax Strategies for High Net Worth Individuals?.
This is where the R.U.D.D.E.R. Method™, Chesapeake Financial Planners' six-step planning process of Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine, keeps these tools coordinated rather than bolted on one at a time.
Frequently Asked Questions
What is the federal estate tax exemption in 2026?
The federal estate tax exemption is $15 million per person in 2026, or $30 million for a married couple, under the One Big Beautiful Bill Act. Estates above that amount face a top federal estate tax rate of 40%, according to the IRS. The exemption is adjusted for inflation each year.
Does Maryland have its own estate tax?
Yes, Maryland imposes its own estate tax on estates valued above $5 million per person, far below the federal $15 million exemption. The Maryland estate tax rate reaches a maximum of 16%. Maryland also levies a separate inheritance tax of up to 10% on assets left to certain non-lineal heirs like siblings, nieces, and friends.
How much can I gift tax-free each year?
You can gift up to $19,000 per recipient in 2026 without reducing your lifetime exemption, according to the IRS annual gift tax exclusion. A married couple can combine their exclusions to give $38,000 per recipient each year. There is no limit on the number of recipients, so systematic annual gifting can move significant wealth over time.
What does an irrevocable life insurance trust do?
An irrevocable life insurance trust, or ILIT, owns your life insurance policy so the death benefit stays out of your taxable estate. Life insurance proceeds are income-tax-free but normally count toward your estate, which can push it over a state exemption. An ILIT removes that value, preserving more wealth for your heirs.
Do I need an estate plan if my estate is below the federal exemption?
Yes, you need an estate plan even below the $15 million federal exemption. State estate taxes, like Maryland's $5 million threshold, can still apply. A plan also protects assets from creditors, avoids probate, names guardians for minor children, and provides powers of attorney for incapacity. Estate planning is about far more than federal tax.
Why do beneficiary designations matter more than my will?
Beneficiary designations on retirement accounts and life insurance override your will entirely. If your 401(k) form names an ex-spouse, that person inherits regardless of what your will says. This is one of the most common and costly estate planning mistakes. Review every beneficiary form after marriage, divorce, birth, or death.
Building Your Estate Plan From Here
Estate tax planning is not a document you sign once and forget. It evolves with your wealth, your family, and the tax law. Start by inventorying your assets, reviewing every existing document and beneficiary form, and getting clear on what you want your plan to accomplish. If you want a structured walkthrough, our estate planning guide breaks the process into steps you can actually follow. Download it at chesapeakefp.com.
Want to go deeper? Our Estate Document Locator walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
