Gross Estate Reduction Strategies

For those with a net worth high enough that they anticipate having a transfer tax liability upon their death, there are various strategies to intentionally reduce the size of their gross estate prior to their death in order to either reduce or fully eliminate such transfer tax liabilities.

If someone wishes to leave their assets to their family upon their death, the less money going toward transfer tax liabilities, the more can go to their family, all else equal.

Most individuals, based on current federal tax laws, do not anticipate having a federal estate tax liability upon their death.  In 2026, the federal lifetime gift and estate tax exemption is $15 million for an individual or $30 million for a married couple.

However, many individuals live in states which may have either an applicable state estate tax or state inheritance tax, such that they do anticipate having some form a transfer tax liability upon their death.

For example, in 2026, Massachusetts has a state estate tax exemption of $2 million per individual or $4 million per married couple.  If a single person residing in Massachusetts died in 2026 with a gross estate of $5 million (having never made any taxable gifts during their lifetime), although they would not have a federal estate tax liability, they would have a Massachusetts estate tax liability, since their gross estate exceeds the $2 million Massachusetts estate tax exemption threshold.

Therefore, they may wish to implement strategies to reduce the size of their gross estate to $2 million or less, such that they would not be subject to a Massachusetts state estate tax liability in the event they die in 2026.

There are several gross estate reduction strategies such as single-life annuities, various trusts, and lifetime gifting which could be used to reduce the size of a person's gross estate.

As an example, if a single person who had a $5 million gross estate used $500,000 of their assets to purchase a single-life annuity (i.e., annuitized with a single-life payout option, such that they receive monthly annuity payments for the rest of their life with payments ending upon their death), when this person ultimately dies, since the present value of the future annuity payments is zero, this single-life annuity is not included in their gross estate (or alternatively, it is included in their gross estate at its then-current fair market value of zero).

In this instance, assuming they spent all of the monthly annuity payments during their life, the person would have reduced the size of their gross estate from $5 million to $4.5 million upon their death, all else equal, subjecting a lower amount to the Massachusetts state estate tax.

If you are a prospective client and would like to learn more about hiring us for a financial consultation, where, among other things, we would help you identify and manage important tax and estate planning issues, please visit our Schedule Meeting page.



Mike McErlane, DO, MBA, CFP^®, CFA^®, RICP^®, EA, MCEP^®

Mike McErlane is the owner and founder of Comprehensive Financial Planning for Doctors, LLC based in Frisco, Texas.

Comprehensive Financial Planning for Doctors, LLC (CFPFD) is an Investment Adviser registered with the Texas State Securities Board.  Registration of an Investment Adviser does not imply any specific level of skill or training.  CFPFD only transacts business in states or jurisdictions in which it is registered or exempt from registration.  A copy of CFPFD's current disclosure brochure is available through the Securities and Exchange Commission's Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

The opinions and analyses described are subject to change at any time without notice.  Any information is considered general and is not intended to provide any specific advice or recommendations.  Your use of the information is at your sole risk.  You should consult with your financial advisor, attorney, tax advisor, insurance agent, or other professional advisor before taking action on any information or implementing any strategy.