7 End-of-Life Tax Strategies That Can Save Your Heirs Thousands

Planning for the end of your life can be an incredibly emotional experience for both you and your loved ones. Adding assets to the mix can make the process all the more stressful.

Fortunately, with the right strategies, you can avoid making financial mistakes and instead ensure most of what you want to leave behind lands in the correct hands.

One of the biggest things you can get ahead of is the potential tax burden for your heirs. In this article, we'll review different tactics that can save your family thousands and give you peace of mind.

The IRS allows you to gift loved ones a certain amount of money tax-free every year. Such a gift can be a great way to minimize your tax burden and a valuable way to transfer your wealth early.

The gift tax limit can increase periodically. As of 2025, it's $19,000 per recipient.

The step-up in basis tax provision for homes can dramatically reduce the amount of taxes your heirs pay when they sell inherited property. This rule adjusts the value of real estate to reflect its value at the time of the owner's death instead of when it was purchased.

Thanks to the step-up in basis, you only pay capital gains on the change in value that occurs after inheritance. For example, let's say you originally purchased your home for $100,000, and its new market value is $350,000. When it's sold, instead of paying taxes on the difference between $100,000 and the selling price, your heir would only have to pay taxes on the difference between $350,000 and the sale price, potentially saving them thousands.

It's worth noting this goes the other way, though. If the home depreciates in value, the cost basis would step down.

Charitable donations offer the dual benefit of supporting a worthy cause and reducing your tax liability. When it comes to estate planning, the timing and structure of these gifts can help lower the total of your estate before it's taxed.

Most states do not levy a tax on inheritances. However, a dozen do, and it can be an estate or inheritance tax, or both. The difference? Estate taxes are taken from the estate before heirs receive anything, while the heirs pay inheritance taxes based on what they receive.

Those states with an estate tax include:

• Connecticut
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington
• District of Columbia

And those states with an inheritance tax include:

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

If your state does have an inheritance or estate tax, you'll likely want to work with an estate planner to minimize that tax.

Life insurance can provide your beneficiaries with needed funds after your death. Although typically tax-free, there are situations in which these benefits may be subject to taxation.

Some notable exceptions include a group-term life insurance policy that exceeds $50,000 from an employer, an estate as the beneficiary of a life insurance policy rather than an individual, and payouts received in installments versus a lump sum.

A life insurance agent should be able to guide you through the process and help you avoid these taxable exceptions.

An FLP is a structure that allows families to share joint ownership of family-owned assets and businesses. It is particularly useful in passing on wealth from older family members to younger family members.

More specifically, the transfer of assets within the FLP can reduce potential gift and estate taxes.

Converting a traditional IRA to a Roth IRA can offer significant tax benefits for heirs. More specifically, Roth IRAs offer the ability for heirs to make tax-free withdrawals, provided they are "qualified distributions."

This means that the account has met the five-year hold period, which begins when the initial contribution to the account is made.

There is no question that you should prepare yourself financially to build your estate and save money on distributions to your heirs. Discovering what strategies make sense for you takes extensive time and planning.

Fortunately, working with a qualified estate planner can help you select the most suitable tax strategies for your specific situation. A financial planner can help you take the right steps to minimize your tax burden.