Planning area
Estate Planning
Trust architecture & generational transfer.
Overview
Structures that survive the next two generations.
Estate planning at the high-net-worth and ultra-high-net-worth tiers are rarely about a single trust document. It is about how a portfolio of trusts, business interests, real estate, and insurance contracts intersect and move together — and what happens when the death of a principal occurs.
TES partners with attorneys and CPAs to stress-test existing structures, identify liabilities, and design alternatives that preserve the original intent while reducing the friction and the liability of transfer.
The problem — Federal estate death tax
A 40% tax stands between your clients and their heirs.
40%
Top federal estate tax rate on assets above the exclusion
$15M
Individual exclusion under the 2026 tax code
$30M
Combined exclusion for married couples
Under the 2026 tax code, every dollar above these thresholds is subject to estate tax at rates that rapidly escalate to 40%. For high-net-worth individuals, a $15M exclusion ($30M for married couples) doesn't begin to preserve the substance of what they've worked so hard to accumulate.
Historical context
Exemption amounts have always moved — and they will again.
Federal gift, estate & GST exemption amounts · Per individual · 2001–2026
2001–2010
Estate & GST rose; gift held at $1M
2011–2017
All three unified & inflation-indexed
2018 TCJA
Exemptions doubled to $11.18M
2026
$15M individual / $30M couple
The problem — State death taxes
It isn't only the IRS. Most states draw the line far lower.
The federal $15M exemption is only half the picture. Seventeen states and the District of Columbia levy their own estate or inheritance tax in 2026 — and several begin taxing at a fraction of the federal threshold. A family that owes nothing federally can be fully exposed in Oregon, Massachusetts, or Rhode Island.
| State | Exemption (2026) | Top Rate | Notes |
|---|---|---|---|
| Oregon | $1.0M | 16% | Lowest exemption in the nation. No inflation indexing. |
| Rhode Island | $1.8M | 16% | Exemption indexed annually for inflation. |
| Massachusetts | $2.0M | 16% | Flat $2M exemption — not indexed. |
| Minnesota | $3.0M | 16% | Brackets begin at a steep 13%. |
| Washington | $3.0M | 20% | Top rate reduced from 35% to 20% effective July 1, 2026 (ESB 6347). |
| Illinois | $4.0M | 16% | No spousal portability of the exemption. |
| D.C. | $4.99M | 16% | Exemption indexed annually. |
| Maryland | $5.0M | 16% + 10% | Only state with BOTH estate and inheritance tax. |
| Vermont | $5.0M | 16% | Single flat rate above exemption. |
| Hawaii | $5.49M | 20% | Second-highest top rate, on estates over $10M. |
| Maine | $7.0M | 12% | Comparatively low top rate. |
| New York | $7.16M | 16% | “Cliff” provision — if estate exceeds 105% of exemption, entire estate is taxed from dollar one. |
| Connecticut | $15.0M | 12% | Tracks federal exemption. Flat 12% rate. |
Five states tax the inheritance, not the estate
An inheritance tax is owed by the person who receives assets, with the rate set by their relationship to the deceased — spouses are exempt everywhere, and most states exempt children too. These apply regardless of estate size.
Pennsylvania
4.5–15%
4.5% to children, 12% to siblings, 15% to others.
New Jersey
11–16%
Repealed estate tax in 2018. Children and spouses pay nothing.
Kentucky
up to 16%
Immediate family fully exempt; rate rises with relationship distance.
Nebraska
up to 18%
County-administered. Highest rates on non-relatives.
Maryland
10% flat
Only state with both taxes. Close family exempt.
See the full 2026 reference — including the interactive map — on the state estate & inheritance tax page.
The solution — How we help
Leverage assets into the dollars that pay the tax.
Life insurance held in an ILIT
Irrevocable Life Insurance Trust
Developing a life insurance strategy today will efficiently transfer cash to heirs in the future, generally free of income tax under current law. When a federal or state tax liability occurs, life insurance should be viewed not only as an asset within the overall portfolio, but as an investment alternative — one that helps clients stay diversified.
“Life insurance is not an expense. Life insurance is future money.”
Life insurance is the time-tested solution of leveraging assets into the dollars needed to pay future taxes — so your clients can pass on what they've worked so hard to accumulate. When placed inside an ILIT, policies help high-net-worth families hedge against risk, ensuring estate taxes can be paid without forcing a liquidation of business interests, real estate, or other illiquid assets at the wrong time.
- Generally income-tax-free death benefit transferred to heirs
- Guaranteed, leveraged asset growth
- Estate tax paid without liquidating assets
- Wealth transferred intact across generations
How the ILIT flows
Establish the trust & transfer cash
Holds the policy & manages distributions
Receives premium, pays the death benefit
Receive estate and income tax-free payment
Common questions
Understanding the Irrevocable Life Insurance Trust (ILIT), step by step.
What role do ultra-high-net-worth clients (grantor) play in an irrevocable trust?
Setting it up
The grantor works with an estate planning attorney to draft and sign the irrevocable life insurance trust document. Once signed, the trust is permanent. The grantor gives up control of the assets placed inside it — which is the trade-off that makes the tax benefits possible. Since the trust sits outside the estate, it is not includable in the gross estate of the grantor(s).
Funding it
The grantor(s) make cash gifts into the trust, usually on a recurring basis (often annually). These gifts are typically structured to fall within the annual gift tax exclusion ($19,000 per beneficiary in 2026). The trustee then uses those funds to pay the life insurance premiums.
Giving up control
Because the grantor cannot take the assets back, direct the trust's investments, or change the beneficiaries freely, the IRS does not count the trust's assets as part of the grantor's taxable estate.
What they can't do
Name themselves as a beneficiary · Reclaim assets placed in the trust · Serve as trustee in most cases (doing so can pull assets back into the estate)
The grantor's role is to fund the trust and then step back — the loss of control is precisely what makes the tax strategy work.
What is the insurance company's role in an ILIT?
The grantor gifts cash into the trust, and the trustee uses those funds to pay premiums directly to the insurance company — keeping the policy active. When the insured dies, the insurance company pays the death benefit directly to the trust — not to the grantor's estate. The insurance company converts modest, recurring cash gifts into a much larger lump-sum payout — all of which passes to heirs tax-free.
How does an irrevocable trust work?
- An estate planning attorney drafts the trust document, naming a trustee and beneficiaries. Once signed, it cannot be changed or undone.
- The grantor transfers cash into the trust annually, structured within gift tax exclusion limits. The trustee sends Crummey notices to beneficiaries, giving them a short window to withdraw the gift.
- The trustee uses the gifted cash to pay premiums on a life insurance policy — typically either a permanent single life or second-to-die contract — owned entirely by the trust.
- The insurance company pays the death benefit directly to the trust. Because the trust owns the policy, the proceeds are outside the taxable estate entirely.
- The trustee distributes the proceeds to the beneficiaries according to the trust document — generally free of estate and income tax under current law, subject to change.
The trust works because of one simple rule: you can't be taxed on assets you don't own or control.
What tax advantages do heirs receive from an irrevocable trust?
Estate tax exemption
The death benefit paid into the trust bypasses the grantor's taxable estate entirely. Without an ILIT, a personally owned life insurance policy could push the estate over the federal threshold, triggering a 40% estate tax.
Income tax-free
Life insurance death benefits are generally not subject to federal income tax. Heirs receive the full payout without owing income tax — unlike inherited IRAs or 401(k)s.
GST protection
If structured correctly, an ILIT can also shelter assets passed to grandchildren or later generations from the GST tax — which is also levied at 40%.
Liquidity
The trust can use the death benefit proceeds to loan money to the estate or purchase assets from it, giving the estate liquidity to pay taxes or debts without pulling funds back into the taxable estate.
Compounding benefit
The grantor typically funds the trust with modest annual gifts within the gift tax exclusion, yet heirs can receive a death benefit many multiples larger than what was gifted — all tax-free.
When this comes up
Three situations we see most often.
I. Trapped basis
Concentrated, low-basis positions held inside a trust where the gain has compounded faster than the planning around it.
II. Stale ILIT
A 10–20 year-old irrevocable trust whose carrier, funding mechanics, and successor-trustee provisions no longer match the family's situation.
III. Post-mortem amendment
Decanting, modification, or non-judicial settlement after the principal has passed and the original document needs to be adjusted to the present facts.
How we partner with you
A four-step engagement, sized to the case.
We read every operative trust, partnership, and policy document before we propose anything. No exceptions.
We diagram what's in place: who holds what, what each instrument does, and where the planning is leaking value.
A short brief — usually under 15 pages — that names specific structures and the moves we recommend or explicitly do not.
Drafting stays with the attorney of record. We sit on the calls and produce the supporting analysis.
Have a client who may benefit from advanced planning?
Let's review the opportunity together.
Whether you are working with a business owner, high-net-worth family, estate planning client, or existing policyholder, TES can help determine whether a tax-efficient strategy may add value.
We don't sell products.
We design solutions.
We don't replace advisors.
We empower them.
We don't focus on transactions.
We focus on outcomes.