Takeaways
- Federal estate taxes are not a universal burden. They are only applicable if your combined assets, which include both gifts made during your lifetime and assets transferred at the time of your death, exceed a high threshold ($13.99 million, as of 2025). This means that most estates will not be subject to federal estate taxes.
- A revocable living trust doesn’t automatically reduce your federal estate taxes. The main ways to reduce estate taxes, such as giving to your spouse or to charities, work whether or not you have a trust.
- Even though a trust doesn’t uniquely save on estate taxes, it offers other important benefits, such as avoiding probate court, planning for loss of capacity, and keeping your final wishes private.
Minimizing Estate Taxes
Many people assume that when they establish a revocable living trust, property held in the trust will completely avoid federal estate taxes after their death, when in fact living trusts do not provide any unique estate tax avoidance strategies.
Estate taxes are primarily reduced through the unlimited marital and charitable deductions. These provisions apply regardless of whether assets are held directly by an individual or in a revocable trust.
The unlimited marital deduction allows the transfer of money and property (also referred to as assets) to a U.S. citizen surviving spouse, free from estate tax. Meanwhile, the charitable deduction permits transfers, also free from estate tax, to qualifying charitable organizations. These deductions are not exclusive to living trusts. However, you can incorporate them into a trust-based estate plan to ensure that your assets are distributed in a tax-efficient way.
Federal estate taxes apply only if the total value of a person’s taxable gifts during life combined with the value of their estate at their death exceeds the federal lifetime exclusion amount. This amount is $13.99 million per individual in 2025, and it is scheduled to rise to $15 million in 2026. Amounts above this threshold may be subject to federal estate tax at rates up to 40 percent.
Unless the person who established the trust (also called a grantor, trustmaker, or settlor) and their revocable living trust have combined assets that exceed this threshold, there will likely be no federal estate tax due at their death. However, let’s assume in this case that the assets the grantor owns individually and in the revocable trust are valued at more than the current lifetime exclusion amount.
Note that certain states also have a state estate tax. if you live in one of these states, you should work with an experienced estate planning attorney, as state estate tax thresholds are often lower than the federal threshold and may require additional planning.
Unmarried Grantors and Estate Taxes
The charitable deduction tool is available to all individuals, whether single or married, while the unlimited marital deduction is limited to married individuals.
Assets left to qualifying charitable organizations through a trust are excluded from the grantor’s taxable estate because they qualify for the charitable deduction. By contrast, any portion of the estate that passed to noncharitable beneficiaries — such as children, other relatives, friends, other trusts, or even for-profit businesses — remains part of the taxable estate. If the value of those noncharitable transfers exceeds the federal tax exemption in effect at the time of death, federal estate tax may apply to the excess.
In short, property distributed to qualifying philanthropic organizations avoids federal estate tax entirely, while property directed to private beneficiaries may create an estate tax liability if the estate is large enough to surpass the exemption threshold.
Married Grantors and Estate Taxes
For married couples, both the charitable deduction and the unlimited marital deduction are available. The charitable deduction operates in the same manner as it does for unmarried individuals, removing from the taxable estate any assets left to qualifying charitable organizations.
The unlimited marital deduction allows all qualifying transfers of trust assets to a U.S. citizen spouse after your death to be exempt from estate taxes. To qualify, the assets must either be transferred to your spouse outright or held and managed within a specific type of trust for their benefit.
For example, if you are married and have established and funded a living trust naming your spouse and children as beneficiaries after your passing, the assets transferred to your spouse via the unlimited marital deduction will likely not be subject to federal estate tax. However, the portion of assets passing to your children may incur estate tax, depending on their value and the federal lifetime exclusion amount available at the time of your death.
If you choose to name qualifying charities as beneficiaries, the portion of assets passing to those charities will likely not incur federal estate tax.
Revocable Living Trusts: 3 Advantages
Holding assets in your own name achieves the same federal estate tax reduction benefits as a revocable living trust. So why consider establishing such a trust? Here are at least three good reasons:
Avoid the Probate Process
Money and property held in your living trust at the time of your passing will avoid the court proceeding known as probate. Probate can be a costly, time-consuming process, and the requirements can vary significantly from state to state. By using a living trust, your estate may save significant time and potentially thousands of dollars in court costs and attorney’s fees. Just as importantly, a trust helps ensure a smoother and more private transition of your assets to your loved ones.
Your Final Wishes Stay Private
In most cases, a revocable living trust offers privacy after your death. Unlike a will, which typically must be filed with the court and becomes part of the public record, a trust usually does not. This means that only the trustee and beneficiaries are aware of its terms and administration. As a result, sensitive details about your assets, their distribution, and their management remain private.
Plan for a Potential Loss of Mental Capacity
If you become unable to manage your personal, health, or financial affairs while you are still alive due to illness, injury, or cognitive decline, your successor trustee — someone you’ve nominated to manage the trust’s assets for your benefit — can step in without involving the court. Without the need for a court-supervised guardianship or conservatorship, your estate could save time and thousands of dollars in legal fees and court costs, depending on what state you were living in.
Additional Reading
A revocable living trust can serve as an excellent method for many individuals in arranging their final affairs. While the federal estate tax avoidance strategies employed by a living trust are not exclusive to such trusts, they can be integrated into a trust-based estate plan to leverage the general advantages that living trusts offer and deliver equally significant additional benefits beyond tax savings.
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