How to Reduce Estate Tax in 2026: 7 Strategies That Actually Work
With the 2026 federal estate tax exemption now permanent at $15 million per person, fewer families face federal estate tax than the old sunset forecasts suggested. But state estate taxes and the eventual second death still create bills. This guide explains how to reduce estate tax using strategies that are legal, well-documented, and appropriate for different wealth levels.
1. Use the annual gift exclusion every year
In 2026, you can give $19,000 per recipient per year without using your lifetime exemption or filing a gift tax return in most cases. A married couple can gift-split and give $38,000 per recipient. Over ten years and multiple heirs, this removes millions from the taxable estate.
Use our Lifetime Gift Simulator to model a multi-year gifting program and see the projected estate-tax savings.
2. Elect portability on Form 706
Portability lets a surviving spouse add the deceased spouse’s unused federal exemption, raising the combined shelter to $30 million in 2026. The executor must file Form 706 and elect portability, generally within 9 months of death.
Learn more in What Is Portability (DSUE)? and test the savings in our Estate Tax Simulator.
3. Preserve the step-up in basis
For estates under the federal exemption, keeping appreciated assets until death is often better than gifting them. Heirs receive a stepped-up basis to fair market value, wiping out unrealized capital gains.
See which assets qualify in What Kind of Assets Get a Step-Up in Basis? and run the numbers on our Step-Up Calculator.
4. Fund an irrevocable life insurance trust (ILIT)
Life insurance proceeds are included in your taxable estate if you own the policy. An ILIT removes the death benefit from the estate while providing liquidity for taxes, debts, and equalization among heirs.
5. Consider a GRAT or installment sale to a grantor trust
A Grantor Retained Annuity Trust (GRAT) passes future appreciation above the IRS § 7520 hurdle rate to beneficiaries with little or no gift-tax cost. Installment sales to intentionally defective grantor trusts can similarly freeze value.
6. Use a charitable remainder or lead trust
Charitable remainder trusts provide an income tax deduction and remove appreciated assets from the estate while retaining income. Charitable lead trusts pass remainder assets to heirs at a reduced transfer-tax cost.
7. Relocate to a no-tax state
If you live in a state with its own estate tax, moving to a no-tax state can eliminate that layer. The change must be a real change of domicile — not just a vacation home.
Compare the numbers with our Relocate-to-Save-Tax Calculator and Compare by State tool.