Are you going to pay the death tax?

Tyler Kert
Tamarack Wealth Management

Death and taxes. I’m sure you’ve heard the saying. Those are two things that are unavoidable. And since this is a business journal, I’ll spare you the solution I found for getting out of death. So that leaves us with taxes. Yes, you will pay taxes when you are alive. But are you planning to pay them when you die? While some might argue that it won’t matter, I can assure you that your beneficiaries will cherish your inheritance more than Uncle Sam will. So let’s talk about your estate, see if you have a problem, and then touch on some solutions to reduce your estate tax.  

Do you have an estate tax problem? 

Here’s the good news: the federal estate tax exemption is $13.61 million per person in 2024 (double that for married couples who plan properly). If your estate is below that number, you’re in the clear at the federal level—at least for now. But before you breathe a sigh of relief, there is a catch. If you live in Washington State, the estate tax exemption is only $2.193 million—one of the lowest in the nation. That means even a “comfortable” estate could face taxes of up to 20% on the amount exceeding the exemption. Furthermore, real estate, investments, retirement accounts, and even life insurance proceeds all count toward your estate’s value, often pushing people over the limit without realizing it. 

So, if you’re nodding your head and thinking, “Uh-oh, that might be me,” you’re not alone. But don’t worry—there are strategies to make sure more of your wealth stays with your loved ones. 

Strategies to reduce estate taxes 

The first and easiest way to avoid paying estate taxes is to give the money away before you die. In 2025, the IRS will allow you to give up to $19,000 per person annually (or $38,000 for a married couple). There is no limit on the number of people that you can give to. If you have three kids and five grandkids, you could give up to $304,000 away each year based on the 2025 limit. 

Gifting assets while you’re alive reduces the size of your estate, lowering the eventual tax bill. It’s also a great way to see your loved ones enjoy the fruits of your generosity. After all, leaving an inheritance when you die doesn’t allow you the opportunity to see people benefit from your wise planning and stewardship.  Remember, gifts don’t just have to be cash. Stocks, property, or even a family business can all be part of your gifting. That said, you must consider the tax implications before you give. Generally speaking, we encourage clients to gift high-basis assets like cash. If you give your grandchild the Microsoft stock that you bought twenty years ago, they’ll get hit with a hefty tax bill when they end up selling the stock.  

Another strategy is using irrevocable trusts. For example, an Irrevocable Life Insurance Trust (ILIT) keeps life insurance proceeds out of your taxable estate. Essentially, you set up an irrevocable trust and then either transfer a life insurance policy into the trust or have the ILIT purchase a new policy. Once a policy exists, you then gift money into the trust to pay the premiums. Upon your passing, the life insurance proceeds go to the trust, and the trustee distributes them to beneficiaries as directed. Because the trust owns the policy, the proceeds bypass estate taxes. Keep in mind, irrevocable means irrevocable. Once you set up this trust and start gifting assets into it, you lose control of those assets for good.  

If you’re charitably inclined, consider incorporating charitable giving into your estate plan. A Charitable Remainder Trust (CRT) provides income for you during your lifetime while leaving the remainder to a charity tax-free. Donor-advised funds are another option. These funds allow you to make a tax-deductible contribution now and recommend grants to your favorite charities over time. Either way, your heirs benefit because every dollar going to charity means fewer dollars lost to taxes. 

Conclusion 

The death tax might be inevitable for some, but with the right planning, it can be greatly reduced. The ideas mentioned above are by no means a comprehensive list. There are additional strategies that time won’t allow this article to explore. If you’re concerned about the estate taxes you’ll pay, you can start now by working with your financial advisor and estate attorney who can help you create a plan tailored to your situation. Don’t make your beneficiaries share the inheritance with Uncle Sam. In the end, it’s not what you leave, it’s what your beneficiaries receive.  

This material is for informational purposes only and does not constitute financial, investment, or tax advice. Please consult your tax advisor or financial planner to discuss your specific circumstances before making any decisions.

Tyler Kert, a licensed financial advisor and CPA, provides financial planning and tax consulting services at Tamarack Wealth Management in Cashmere, WA.