A very large estate that relies on a basic “leave it to each other, then the kids” plan can leave millions exposed to the federal estate tax — plus state tax on top. At this level, doing nothing is the costliest choice.
The scenario. Theodore and Vivian, a married couple, built a $40 million fortune — a business, real estate, and investments. They relied on a basic “all to each other, then to the kids” plan and assumed the large federal exemption would cover them. With a combined federal exemption of $30 million (2026), roughly $10 million remained exposed to the 40% federal estate tax — a potential $4 million federal tax — plus Massachusetts estate tax. They had used none of the advanced lifetime planning that could have removed appreciating assets and future growth from their estates.
The problems.
- An estate well above the combined federal exemption, exposed to 40% tax.
- No lifetime gifting or freeze techniques to remove growth from the estate.
- Massachusetts estate tax stacked on top of federal exposure.
The planning solution.
For a large estate, a simple “all to the survivor, then the children” plan defers the problem to the second death without reducing it — and meanwhile, the estate keeps growing, pulling more value above the exemption. The goal of advanced planning is to remove assets, and especially their future appreciation, from the taxable estate during life, while the exemption is large.
Use lifetime exemptions now. Gifting to irrevocable trusts — such as SLATs (spousal lifetime access trusts, which let a couple use exemption while retaining indirect access) and dynasty trusts — moves assets and all their future growth out of both spouses’ estates. With the federal exemption at a historic $15 million per person (2026), front-loading gifts captures that opportunity before any future reduction.
Layer freeze and leverage techniques. GRATs pass appreciation above a low IRS hurdle rate gift-tax-free; sales to intentionally defective grantor trusts (IDGTs) freeze an asset’s value in the estate while future growth accrues outside it; and family limited partnership (FLP) valuation discounts let each exemption dollar transfer more underlying value. These tools transfer growth efficiently.
Provide liquidity with an ILIT. For whatever estate tax remains, an irrevocable life insurance trust holds a policy whose death benefit is estate-tax-free, delivering cash to pay the tax without forcing a sale of the business or real estate.
Coordinate Massachusetts planning. Stacked on the federal exposure is the Massachusetts estate tax (over $2M, up to 16%, no portability), which calls for credit shelter trusts and gifting at the state level too.
A plan built for a middle-class estate leaves a fortune exposed. Large estates need active lifetime planning, not just a simple will.
Key takeaways.
- A simple “all to the survivor” plan defers but doesn’t reduce a large estate tax.
- Use lifetime exemptions via SLATs/dynasty trusts; layer GRATs, IDGT sales, and FLP discounts.
- Add an ILIT for liquidity and coordinate state-level (Massachusetts) planning.
If your estate exceeds the combined federal exemption, move beyond a simple will — lifetime gifting, freeze techniques, and an ILIT can dramatically reduce the tax.