Inheritance Tax Planning Services — Estate Planning

As of 2024, the federal estate tax exemption is $13.61 million per individual (or $27.22 million for married couples). Estates valued below this threshold are generally not subject to federal estate tax. However, some states impose their own inheritance or estate taxes with much lower exemption limits. Additionally, inherited IRAs and other tax-deferred accounts may trigger income taxes when distributed. Proper planning can help you maximize exemptions and minimize tax exposure for your heirs.

One of the most common mistakes is failing to update beneficiary designations after major life events like marriage, divorce, or the birth of a child. Outdated designations can result in assets passing to unintended recipients—even overriding your will. Another frequent error is not coordinating account types (taxable, tax-deferred, tax-free) with your overall estate strategy, which can lead to unnecessary tax burdens for your heirs. A comprehensive review with an advisor ensures your estate plan is aligned and tax-efficient.

Trusts are powerful tools for reducing estate and inheritance taxes because they allow you to transfer wealth outside of your taxable estate while maintaining control over how and when assets are distributed. Irrevocable trusts, for example, can remove assets from your estate entirely, lowering your overall estate tax liability. Trusts can also protect assets from creditors, avoid probate, and ensure your wealth reaches the right people at the right time—all while minimizing tax exposure for your beneficiaries.

Estate tax is levied on the total value of the deceased person's estate before assets are distributed to heirs, and it's paid by the estate itself. Inheritance tax, on the other hand, is imposed on the beneficiaries who receive the assets, and the rate often depends on the heir's relationship to the deceased. The federal government only imposes an estate tax, while a handful of states levy inheritance taxes. Proper planning can help you navigate both and minimize the overall tax burden.

Roth conversions allow you to pay income taxes now on tax-deferred retirement accounts, converting them into tax-free Roth IRAs. For your heirs, this means they inherit assets that can grow and be withdrawn tax-free, reducing their future income tax burden. Roth conversions also reduce the size of your taxable estate, which can be especially valuable if your estate is near or above the federal exemption threshold. Strategic timing of conversions can significantly enhance the tax efficiency of your legacy.

Yes—coordination between a financial advisor and an estate attorney is essential for comprehensive inheritance tax planning. Estate attorneys handle the legal instruments like wills, trusts, and powers of attorney, while financial advisors focus on asset allocation, tax strategies, beneficiary alignment, and account optimization. Together, they ensure your legal documents and financial structures work in harmony to minimize taxes, avoid probate, and protect your legacy. At Sentinel, we collaborate closely with estate attorneys to provide seamless, integrated planning.

Without an estate plan, state intestacy laws will determine how your assets are distributed—often in ways that don't align with your wishes. Your estate may face lengthy probate proceedings, unnecessary legal fees, and avoidable tax burdens. Beneficiary designations on retirement accounts and insurance policies will still apply, but without a coordinated plan, you risk unintended distributions, family disputes, and lost wealth. An estate plan ensures your assets are protected, your wishes are honored, and your loved ones are cared for.

You should review your estate plan every 3-5 years, or immediately after major life events such as marriage, divorce, the birth of a child, a significant change in wealth, or the death of a beneficiary. Tax laws and exemption limits also change over time, so periodic reviews ensure your plan remains compliant, tax-efficient, and aligned with your current goals. At Sentinel, we monitor your estate plan continuously and recommend updates whenever circumstances or regulations shift.