Can You Sidestep The Federal Estate Tax On Property? Here’s What The Law Says

Key Takeaways: 

• Estate Tax Exemption Threshold: The current federal estate tax exemption is $13.61 million per individual, but this may change after 2025, making early planning imperative.
• Strategic Tax Reduction Tools: Legal strategies like irrevocable trusts, annual gifting, and accurate property valuations can significantly reduce estate tax liability.
• Importance of Professional Guidance: Partnering with professionals such as estate planners and property tax experts like Icon ensures compliance and smarter asset protection.

As the go-to professionals for commercial property tax reduction, we at Icon Property Tax have helped thousands of property owners across the country lower their tax liabilities, recover overpaid taxes, and take control of their property’s assessed value. With a track record of success and a deep understanding of local and federal tax systems, we bring unparalleled insight to the intersection of property and estate tax strategy.

Estate planning isn’t just about passing on what you own—it’s about doing so intelligently, within the bounds of the law, and in a way that protects your legacy. One of the most overlooked aspects of estate planning is the federal estate tax, often referred to as the “death tax.” While it may not affect every estate, high-value real estate and appreciating property assets can easily push families above the exemption threshold, exposing them to unexpected tax burdens. The good news? With the right strategy—and a little foresight—you may be able to reduce or even sidestep the federal estate tax on property.

In this piece, we will be discussing how the federal estate tax works, who it affects, and the legal strategies you can use to protect your property and legacy.

What Is The Federal Estate Tax?

The federal estate tax, sometimes referred to as the “death tax,” is a tax imposed on the transfer of property from a deceased person’s estate to their heirs. It is not a tax on the entire estate, but rather on the portion that exceeds a certain value threshold set by the IRS.

This tax is assessed on the fair market value of everything the deceased person owned at the time of death, including real estate, stocks, cash, business interests, and personal belongings. The estate itself is responsible for paying the tax before any assets are distributed to beneficiaries.

It’s important to note that the federal estate tax is distinct from state-level estate and inheritance taxes, which can vary widely depending on where you live. For many Americans, especially those with property holdings or family estates, understanding this tax is the first step in planning to legally minimize its impact.

Who Is Affected By The Federal Estate Tax?

Not everyone has to worry about the federal estate tax. Most estates are not large enough to trigger it. As of 2025, the federal estate tax exemption is $13.61 million per individual (or $27.22 million for married couples, with proper planning). This means that only the value of an estate exceeding this threshold is subject to taxation.

For example, if an individual passes away with an estate valued at $15 million, only $1.39 million would be taxed federally, not the entire estate. The tax rate on the taxable portion of the estate is progressive, reaching up to 40% for the highest brackets.

People most likely to be affected include:

• High-net-worth individuals
• Real estate investors with appreciating assets
• Business owners with significant company valuations
• Families with generational wealth

Additionally, beneficiaries in high-value property markets may unknowingly inherit estates that push past the exemption limit due to home value appreciation alone. This is where companies like Icon can offer value by helping families understand the real valuation of their assets and explore strategic solutions to minimize exposure.

How Much Can You Pass On Tax-Free?

The amount you can pass on to heirs without triggering the federal estate tax depends on the current estate tax exemption, which is set by federal law and can change over time. As of 2025, the exemption is $13.61 million per individual. For married couples, the combined exemption is $27.22 million if they take advantage of the portability provision, which allows a surviving spouse to use any unused exemption from their deceased spouse.

This exemption covers all assets, not just cash or property. That includes:

• Real estate (residences, investment properties)
• Stocks and retirement accounts
• Businesses and partnerships
• Personal possessions such as jewelry or art

It’s important to note that this exemption is not permanent. In fact, unless Congress takes action, the exemption is scheduled to drop significantly in 2026, potentially to around $6–7 million per individual, depending on inflation adjustments.

For high-net-worth families, this potential decrease makes it important to start planning now. Strategic moves made today—like gifting assets or setting up trusts—could help lock in the higher exemption and reduce future estate tax liabilities.

Legal Ways To Minimize Or Avoid Estate Tax On Property

The federal estate tax can be steep, but the good news is that there are completely legal ways to reduce or even eliminate it for many families. These strategies revolve around reducing the size of your taxable estate or transferring assets efficiently before death. Here are some of the most effective legal methods:

Lifetime Gifting

By giving away portions of your estate while you’re still alive, you reduce its size and, therefore, its tax exposure. You can gift up to $18,000 per person per year (2024 limit) without touching your lifetime exemption.

Trust Creation

Trusts like Irrevocable Life Insurance Trusts (ILITs) or Qualified Personal Residence Trusts (QPRTs) can move high-value assets out of your estate, shielding them from tax.

Charitable Contributions

Donations to qualified charities can be deducted from your estate’s value. Some advanced tools, like charitable remainder trusts (CRTs), let you give while still receiving income during your lifetime.

Family Limited Partnerships (FLPs)

These allow you to retain control of property or a business while gradually transferring ownership to heirs at a discounted value for tax purposes.

Appraisal And Valuation Strategies

A professional property tax consultant like Icon can make certain that your real estate is accurately appraised, potentially avoiding inflated valuations that push your estate over the exemption threshold.

Gift Strategies To Reduce Your Taxable Estate

Gifting is one of the most straightforward and IRS-approved ways to lower your taxable estate. By strategically transferring assets during your lifetime, you reduce the amount that will be subject to estate taxes after your death.

Annual Gift Tax Exclusion

As of 2025, you can give up to $18,000 per person per year without affecting your lifetime estate tax exemption. For example, a couple with three children could gift each child $36,000 annually—$18,000 from each parent.

Lifetime Gift And Estate Tax Exemption

Beyond the annual exclusion, you can also use part of your lifetime exemption ($13.61 million per individual) for larger gifts. Just remember: anything you give above the annual limit chips away at your lifetime estate tax shield.

Educational And Medical Gifts

Payments made directly to educational institutions (for tuition) or medical providers (for bills) are completely exempt from gift taxes, no matter the amount. This is a powerful tool for wealth transfer, especially in families with grandchildren or elderly members.

Gifting Appreciating Assets Early

Real estate, business shares, or investments expected to rise in value are smart to gift sooner rather than later. This way, their appreciation occurs outside of your taxable estate.

Using the Marital Deduction and Portability Rule

For married couples, two powerful estate planning tools can significantly reduce or eliminate estate tax liability: the unlimited marital deduction and the portability rule.

Unlimited Marital Deduction

The IRS allows an unlimited amount of assets to be transferred tax-free between spouses upon death, as long as both are U.S. citizens. This means that when the first spouse passes away, no federal estate tax is owed, regardless of the estate’s size, if everything is left to the surviving spouse.

However, this doesn’t solve the problem entirely. If the surviving spouse’s estate is still above the exemption threshold upon their death, estate tax may apply at that time.

Portability Rule

To address this, the IRS offers the portability of the unused estate tax exemption. If the first spouse doesn’t use their full exemption amount (currently $13.61 million), the remainder can be transferred to the surviving spouse, effectively doubling the total exemption to $27.22 million for a couple.

Important: To take advantage of portability, the estate must file Form 706 with the IRS after the first spouse dies, even if no tax is due. Failing to file this form can result in losing the unused exemption.

Smart Planning Combines Both

An optimal estate plan often uses the marital deduction to avoid tax at the first death and then implements trusts or gifting strategies to make sure that the remaining estate stays below the exemption level for the surviving spouse.

Working with estate planning professionals—and leveraging accurate property assessments from firms like Icon—guarantees that couples don’t accidentally lose the opportunity to shield millions in assets.

Why Professional Help Matters

While it’s possible to read up on estate taxes and make basic plans on your own, the nuances and high stakes involved mean that professional guidance is imperative, especially for those with significant property assets.

Estate Planning Attorneys

Estate planning attorneys draft legal documents like wills and trusts to verify that your estate is distributed according to your wishes. They also help you structure these documents to comply with both federal and state tax laws, potentially saving your heirs from costly errors.

Tax Advisors And CPAs

Tax professionals track your gift and estate tax exemption usage and file important forms like IRS Form 706. They make sure you are maximizing deductions and staying compliant with ever-changing tax regulations.

Property Valuation Professionals

A precise valuation of your property can significantly reduce your estate tax burden. Companies like Icon specialize in accurate assessments to prevent overvaluation that could unnecessarily inflate your taxable estate.

Integrated Planning Makes The Difference

Coordinating estate lawyers, CPAs, and valuation specialists makes certain that all parts of your estate plan work together efficiently. This team-based approach helps avoid gaps, minimizes tax exposure, and gives you peace of mind.

Final Thoughts 

Avoiding or minimizing the federal estate tax on property is not only possible—it’s completely legal when done right. With early planning and the right team, families can preserve more of their wealth across generations.

Tax laws and exemption limits change over time, making it imperative to stay informed and review your estate plan regularly. Whether it’s updating trust structures or reevaluating property values, working with experienced professionals like Icon can make all the difference in protecting what you’ve built.

Frequently Asked Questions About Avoiding Federal Estate Tax On Property

What is the difference between a taxable estate and a probate estate?

A taxable estate includes the total value of all your assets subject to federal estate tax, while a probate estate only includes assets that pass through the court-supervised probate process. Some assets, like jointly-owned property or those in trusts, may bypass probate but still be included in the taxable estate.

Can life insurance proceeds be taxed as part of an estate?

Yes, if the deceased owned the policy at the time of death, the payout may be included in the estate’s value. However, using an Irrevocable Life Insurance Trust (ILIT) can help exclude it from the taxable estate.

Does debt reduce the value of an estate for tax purposes?

Yes, debts such as mortgages, medical bills, or personal loans are deducted from the gross estate value, which can help reduce the estate’s taxable amount.

Are family farms or small businesses protected from the estate tax?

Special provisions like Section 2032A and Section 6166 of the tax code can reduce estate tax burdens on family farms or closely-held businesses, especially when heirs continue the operation. These can provide valuation discounts or allow estate taxes to be paid in installments.

Can I use a 529 college savings plan as an estate planning tool?

Yes, contributions to a 529 plan are considered gifts and can qualify for the annual gift tax exclusion. You can also “front-load” up to five years’ worth of gifts at once to reduce your estate faster.

Is it better to give property to heirs during life or after death?

Gifting during life can reduce estate size and avoid estate tax, but heirs receive your original cost basis. If inherited after death, heirs get a step-up in basis, which may reduce capital gains tax when they sell.

Can I name a trust as a beneficiary of my retirement accounts?

Yes, but it must be structured properly to avoid adverse tax treatment. A “look-through” or “see-through” trust can maintain stretch benefits, but the rules became more limited under the SECURE Act.

What happens if I move to a state with no estate tax?

Your new state of residence may reduce or eliminate state estate tax liability, but federal estate tax rules still apply based on total asset value, regardless of where you live.

Are digital assets (like cryptocurrency) included in my estate?

Yes, all digital assets, including cryptocurrency, domain names, and NFTs, are included in the valuation of your estate and can be subject to estate tax if they push your estate above the exemption threshold.

How often should I review my estate plan?

It’s recommended to review your estate plan every 3–5 years or after major life changes like marriage, divorce, a new child, or significant changes in estate tax laws.