Tax-Free Inheritance Strategies to Maximize What Your Loved Ones Keep
Estate Taxes Don’t Have to Define Your Legacy
Even though Arizona has no state inheritance or estate tax, the federal government still claims up to 40% of large estates over the exemption threshold—currently over $13 million, but scheduled to drop significantly in 2026. Meanwhile, inherited retirement accounts, rental income, and investments can all trigger unnecessary taxes without proper planning.
At Family Tree Planning, we help you minimize those taxes and structure your legacy so your loved ones receive more of what you intended. Whether you’re passing along real estate in North Phoenix, retirement accounts in Scottsdale, or family businesses across Maricopa County, our strategies help transfer wealth efficiently and intentionally.
Arizona’s Inheritance Landscape—and the Federal Trap
Arizona doesn’t impose estate or inheritance tax—but that doesn’t mean your heirs are safe from federal taxes. Assets above the federal estate tax exemption are taxed at up to 40%. And even if your estate doesn’t reach that threshold, retirement accounts are subject to income tax when withdrawn by heirs. We build inheritance strategies that take both into account—so your legacy goes to your loved ones, not the IRS.
Gifting Assets While You’re Living
Use the IRS’s annual gift exclusion (currently $18,000 per person) to reduce your taxable estate gradually. You can also use your lifetime exemption for larger gifts through irrevocable trusts, shifting growth outside your estate while retaining control.
Converting Retirement Accounts to Roth
Inherited IRAs must now be emptied within 10 years—creating a tax bill for your heirs. A Roth conversion now may let your loved ones inherit retirement funds income-tax free later. We’ll help you decide if this tradeoff is right for your situation.
Use Life Insurance for Tax-Free Wealth Transfer
Life insurance proceeds are typically income-tax free and can create instant liquidity for heirs. With advanced tools like Irrevocable Life Insurance Trusts (ILITs), we can ensure these proceeds aren’t counted in your taxable estate—helping your family receive the full benefit.
Blend Charitable Giving and Tax Reduction
Charitable Remainder Trusts and retirement account bequests to nonprofits can shrink your taxable estate and fulfill your philanthropic goals. We’ll help you strike a balance between supporting loved ones and causes that matter to you.
Tax-Free Inheritance Strategies
Your Questions About Tax-Free Inheritance, Answered
What is the current estate tax exemption?
The federal exemption is over $13 million per person (2025), but it's expected to drop to around $6 million in 2026. Our strategies adapt to changing tax laws to keep your plan aligned.
How much can I give my children tax-free?
You can gift up to $18,000 per child annually without reducing your lifetime exemption or triggering gift tax. Larger gifts are possible, but require filing a gift tax return—most clients don’t owe tax unless their total gifts exceed the lifetime exemption.
Is life insurance subject to estate tax?
If you own the policy, the death benefit is counted in your taxable estate. By placing it in an ILIT, the payout stays tax-free and outside your estate—maximizing the legacy for your beneficiaries.
Will my kids owe tax on inherited assets?
It depends. Investment property and stocks typically receive a step-up in basis, minimizing capital gains tax. However, retirement accounts like IRAs do not, and distributions are taxable unless converted to Roth in advance.
What’s the best way to give to charity and reduce taxes?
Consider a Charitable Remainder Trust, which pays income to you or your heirs before the remainder goes to charity—offering immediate tax deductions and estate reduction.