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M10 · Module 10 of 11

Estate & legacy

Estate planning decides who gets your assets, how much tax is paid moving them, and how much control you keep along the way. For a high earner whose wealth compounds for decades, small structural choices made early can change the size of the eventual tax bill and how smoothly assets pass to the next generation.

What you’ll take away

  • How a taxable estate is measured and where the lifetime exemption fits
  • How annual gifts and gift-splitting move wealth tax-free year after year
  • What revocable and irrevocable trusts do, in plain terms
  • How 529 accounts and superfunding accelerate education savings
  • Why step-up in basis changes which assets to give now and which to hold

What counts as your taxable estate

Your taxable estate is, roughly, everything you own or control at death: real estate, investment and bank accounts, retirement balances, business interests, and personal property. Life insurance counts too if you own the policy, which surprises people. We cover how policy ownership pulls a death benefit into or out of the estate in life insurance inside an estate plan.

Against that total, every person has a lifetime estate-and-gift exemption: an amount you can pass to others, during life or at death, before any federal estate or gift tax applies. Estate tax and gift tax share this one exemption, so large gifts made while you are alive reduce what remains to shield your estate later. Above the exemption, the tax rate is steep. The current per-person exemption is tracked as $15,000,000 (2026), $13,990,000 (2025).

Two features matter for married couples. First, each spouse has a full exemption, so a married couple can shield roughly double a single person’s amount; the combined figure is tracked as $30,000,000 (2026), $27,980,000 (2025). Second, portability lets a surviving spouse keep whatever exemption the first spouse did not use. If one spouse dies having used only part of their exemption, the unused portion can transfer to the survivor, but only if the executor makes an election on a timely estate-tax return. Portability is not automatic; missing that filing forfeits it.

One forward-looking point shapes everything below. The exemption is scheduled to change: under current law the high exemption amount is set to step down at a future point unless legislation intervenes. Plan around the concept, not a specific number or date, because both can move. The practical takeaway is that a window of unusually high exemption may not last, which is why people with larger estates think about using exemption sooner rather than assuming it will always be there.

This is also where the estate question stops being universal. Most readers will never owe federal estate tax, because their net worth sits well below the exemption. For them, the gifting and 529 material below still applies, while the trust and exemption-planning sections are more relevant once net worth approaches the exemption. A quick way to see where you stand is estate / gift exposure estimator, which screens your situation and routes you to the depth that fits.

Annual gifts and the lifetime exemption

Separate from the lifetime exemption is the annual gift exclusion: an amount you can give to any one person each year, to as many people as you like, with no gift-tax filing and no use of your lifetime exemption. Give to three children and four grandchildren, and seven separate annual exclusions apply. These gifts simply leave your estate, free and clear. The per-recipient amount is tracked as $19,000 (2025 and 2026).

Married couples gain a second lever called gift-splitting. A married couple can treat a gift made by either spouse as if each gave half, which effectively doubles the annual exclusion per recipient even when the money comes from one spouse’s account. Splitting a gift above the simple per-person exclusion requires filing a gift-tax return to make the election, but it lets a couple move meaningfully more each year without touching the lifetime exemption.

Why does this matter so much over time? Annual-exclusion gifts compound. Wealth moved out of your estate today, along with all of its future growth, is wealth that will never be taxed in your estate. Moving appreciating assets early is more powerful than moving them late, because the appreciation accrues outside the estate from then on. That is the core mechanic behind most lifetime gifting strategies, and it sets up a tension with basis that we return to at the end of the module.

Charitable gifts work differently and get their own treatment: gifts to qualified charities are generally not subject to gift tax at all and can also reduce your taxable estate, which makes giving both a values decision and a planning tool. We cover the mechanics, including donor-advised funds and gifts of appreciated stock, in charitable giving as a legacy and estate tool.

How trusts fit, in plain language

A trust is a legal arrangement where one party (the trustee) holds and manages assets for the benefit of others (the beneficiaries), under rules you write. Trusts sound exotic, but most serve one of two everyday goals: keeping control over how assets are used, or moving assets out of your taxable estate. Two categories cover most of what high earners encounter.

A revocable living trust is one you create and can change or undo at any time while you are alive. You typically act as your own trustee, so day-to-day nothing feels different: you still control the assets. Its main jobs are avoiding probate and providing for incapacity. Probate is the public, court-supervised process of settling an estate, and it can be slow, costly, and exposed to public record. Assets titled in a revocable trust pass to your beneficiaries outside probate, privately and usually faster. Because you keep full control, though, a revocable trust does nothing to remove assets from your taxable estate. Everything in it still counts as yours for estate-tax purposes. People sometimes assume “trust” means “estate-tax savings”; for a revocable trust, that is not so.

An irrevocable trust is one you generally cannot change or revoke after creating it. You give up control, and in exchange the assets can be treated as outside your estate. That is the trade: relinquish ownership to remove the assets, and their future growth, from estate-tax reach. Funding an irrevocable trust is usually a gift, so it interacts with the annual exclusion and the lifetime exemption described above. Families use irrevocable trusts to hold life insurance, to make gifts to children or grandchildren under controlled terms, and to lock in use of today’s exemption before any future reduction.

Trust structure is where general education reaches its limit. The specific type of trust, how it is drafted, the tax elections involved, and how it fits your state’s law are decisions for an estate attorney and a CFP working together. The goal here is that you recognize what a trust can and cannot do, so the conversation with a professional starts from understanding rather than from a sales pitch. Personalized structuring is squarely where professional advice belongs.

529 plans and superfunding for education

A 529 plan is a tax-advantaged account for education expenses. Contributions are made with after-tax dollars, the money grows tax-free, and withdrawals are tax-free when used for qualified education costs. For families expecting to fund college or private school, a 529 is one of the cleaner tax-advantaged vehicles available, and contributions can also reduce your taxable estate because a completed gift into a 529 generally leaves your estate.

Contributions to a 529 count as gifts to the beneficiary, which means they normally fall under the annual gift exclusion. That connects 529 funding to everything in the gifting section: a married couple can gift-split contributions, and large contributions above the annual exclusion would otherwise eat into the lifetime exemption.

Superfunding is the feature that makes 529s distinctive for high earners. Tax rules let you front-load several years of annual-exclusion gifts into a single year and elect to spread them across that period for gift-tax purposes, so a large up-front contribution still counts as if made evenly over several years and stays inside the annual exclusion. The benefit is time in the market: dollars invested today have years longer to compound tax-free than the same dollars dribbled in annually. A married couple can combine superfunding with gift-splitting to move a substantial sum into education savings in one year without touching the lifetime exemption.

Superfunding carries details worth getting right. The election is made on a gift-tax return, additional gifts to the same beneficiary during the spread period can create overages, and dying partway through the period pulls a portion back into your estate. The arithmetic depends on the current annual exclusion and the number of years over which front-loading is allowed, both tracked in the parameter layer and both subject to change. Rather than do that math here, hand your numbers to 529 superfunding calculator, which models the front-loaded contribution and the year-by-year gift-tax treatment for your situation.

Step-up in basis and what to hold versus give

One rule quietly governs which assets you should give away during life and which you should hold to pass at death: the step-up in basis. Basis is what you paid for an asset; gain is the difference between basis and value, and you owe capital-gains tax on the gain when you sell. When you die, most assets receive a step-up: the basis resets to the market value as of the date of death. Heirs who inherit an appreciated asset and sell it shortly after generally owe little or no capital-gains tax, because the built-in gain was erased at death.

That rule creates a direct tension with the gifting strategies above. When you gift an asset during life, the recipient takes your original basis, called carryover basis, and inherits the unrealized gain along with it. Sell later, and they owe tax on appreciation going back to your purchase. Hold the same asset until death, and the basis steps up, wiping out that gain for your heirs.

So the two strategies pull in opposite directions, and which one wins depends on whether estate tax is in play. For a highly appreciated asset, holding it to pass at death can be the more tax-efficient choice, because the step-up saves capital-gains tax and there may be no estate-tax cost if your estate is below the exemption. For someone whose estate is large enough to face estate tax, gifting an appreciating asset early can still win, because removing all of its future growth from a taxable estate can outweigh the lost step-up. The general pattern many families follow is to gift cash or higher-basis assets, where little step-up is being given up, and to hold low-basis, highly appreciated assets for the step-up at death. This is exactly the calculus behind deciding what to do with concentrated or highly appreciated stock, which we treat in appreciated and concentrated stock and its basis at death.

There is no single right answer, because it turns on your estate size relative to the exemption, the asset’s basis, your time horizon, and your goals for heirs. That balance is where the framework ends and a personalized plan begins.

Putting it together

Estate planning for a high earner comes down to a few connected ideas. Know what counts in your taxable estate and where the lifetime exemption sits, remembering that the high exemption is scheduled to change. Use the annual exclusion, doubled by gift-splitting if married, to move wealth and its future growth out of your estate year after year. Understand that a revocable trust buys control and probate avoidance while leaving assets in your estate, and an irrevocable trust removes assets in exchange for giving up control. Treat 529s as both an education and an estate tool, and let the calculator handle superfunding. Above all, weigh gifting against the step-up in basis, because giving early and holding to death are both valid and the right move depends on your numbers. From there, the structuring and the specific decisions move to professionals.

Connections

This module explains how these strategies work. For what to do in your own situation, the platform hands off to a CFP.