Inheritance Taxes: How Much Are the Wealthy Really Paying?

Many assume the ultra-wealthy pay sky-high inheritance taxes. In reality, most pay far less than expected—or even nothing at all. How? Through a mix of high exemptions, legal trusts, and strategic gifting that shift tax burdens away from their heirs.

By following the same key strategies that reduce inheritance taxes and learning the loopholes that keep wealth in the family, you may be able to take your estate planning up a notch.

Key Takeaways

• Wealthy individuals often use legal strategies like trusts, gifts, and charitable donations to minimize inheritance taxes.
• High exemptions mean most estates avoid federal estate taxes, but proper planning also ensures that heirs don’t face unexpected tax bills.
• Estate planning isn’t just for the super-rich—it helps families at all income levels protect their assets and ensure a smooth transfer to heirs.

How Inheritance Taxes Work

Inheritance taxes are often misunderstood, and for good reason. Depending on where you live, they might take a sizable chunk of an estate—or leave heirs with no tax bill. The federal threshold is so high that most estates fall well below the taxable limit.

For those who owe, strategies like trusts, gifting, and charitable donations can significantly lower their tax liability and, in some cases, eliminate it.

Inheritance Tax vs. Estate Tax

Though often confused, inheritance and estate taxes are distinct.

• Estate tax is taken from the total value of a deceased person’s estate before assets are distributed.
• Inheritance tax is paid by heirs on what they receive, but only in certain states. The federal government imposes estate taxes, while inheritance taxes depend on state laws and a beneficiary’s relationship to the deceased.

Federal vs. State Inheritance Taxes

As of 2025, the federal estate tax exemption, or the amount an individual can pass on tax-free, stands at $13.99 million. This high threshold means that many estates fall below the taxable limit, thereby reducing potential tax liabilities.

Only six U.S. states impose an inheritance tax, making it easier for wealthy individuals in most regions to avoid this tax altogether. Plus, federal tax thresholds are so high that many estates don’t reach them, further reducing tax liabilities.

Common Misconceptions About Inheritance Taxes

It’s a common misconception that wealthy individuals pay substantial inheritance taxes. In reality, tax exemptions, trusts, and smart financial strategies can significantly reduce their payments. Since only a handful of states impose inheritance taxes and the federal estate tax exemption is so high, most estates owe little to nothing. In many cases, careful planning can result in little to no inheritance taxes for heirs.

How Wealthy Families Minimize Inheritance Taxes

Wealthy families often pass down fortunes while paying little to nothing in inheritance taxes. They accomplish this through high estate tax exemptions, strategic gifting, and estate planning tools like trusts. All of these methods legally minimize tax obligations and, in some cases, eliminate them altogether. Here’s how they do it.

Tax Exemptions and Thresholds

The federal estate tax exemption is extremely high—$13.99 million in 2025—meaning estates below this threshold pay no federal estate tax. If an estate exceeds this amount, tax planning becomes essential to reduce the tax burden.

One key strategy used to minimize estate taxes is the step-up in cost basis, which can significantly reduce capital gains taxes for heirs. Jason Escamilla, CFA, founder, CEO, and Chief Investment Officer of ImpactAdvisor LLC, explains that with proper planning, inherited assets can transfer tax-free if they remain below the estate exclusion limits.

“That comes across completely tax-free when you do the proper planning and when you’re below the estate exclusion limits,” he said.

Trusts and Estate Planning Strategies

Dynasty trusts, revocable trusts, and other strategies allow wealthy individuals to transfer assets without triggering high tax liabilities.

Beyond trusts, estate planning strategies like wills, beneficiary designations, and family-limited partnerships can also help structure wealth transfers efficiently.

Proper planning allows your assets to be distributed according to your wishes while minimizing tax exposure and reducing legal complications.

Setting up a trust can help reduce inheritance tax liability and provide long-term financial benefits for your heirs. Learn how to create a trust fund for your family.

Gifting Strategies

Gift-giving is another tool used to reduce the size of taxable estates and pass on wealth to heirs with minimal tax liability. However, deciding when to give and when to hold assets does require careful planning. Every time you sell an asset and pay taxes, you have less wealth working for you.

Escamilla cautions, “It’s important to keep in mind, ‘every time I do that I have less wealth.’ And so it’s a constant trade-off to consider—do we just let it ride?”

Holding onto appreciated assets until inheritance can allow heirs to benefit from the step-up in cost basis, which eliminates capital gains taxes on past appreciation.

Charitable Giving As a Tax Shield

Charitable donations can not only help causes that matter but also reduce taxable estates. By giving to charity, wealthy individuals can lower their estate’s taxable value, which reduces their inheritance taxes.

Escamilla explained that tax planning around charitable giving allows people to be more intentional with their donations, making sure that they align with their long-term financial strategy.

“You can do tax planning around it and then you can be thoughtful and say…we really wanted to donate this anyway, you know, and so we’re going to donate it in a couple of years,” he said.

Valuation Discounts for Family-Owned Businesses

Family-owned businesses can use valuation discounts to reduce the taxable value of the estate and help heirs retain more wealth after inheritance. Valuation discounts allow certain assets, like family-owned businesses, to be appraised at a lower value for tax purposes, reducing the overall estate tax burden.

For example, a Discount for Lack of Marketability (DLOM) accounts for the difficulty in selling a privately-held business interest, while a Discount for Lack of Control (DLOC) reflects the reduced influence of someone with minority ownership.

The Bottom Line

For those managing inherited assets, a lack of awareness can lead to costly mistakes.

“People eventually take over management for their parents, and this is very important, but they’re not thinking about these things. When they take this stuff over, they might think, let’s blow out these stocks, and let’s do this,” said Escamilla. Selling assets haphazardly can trigger unexpected tax bills, reducing the value of the inheritance.

Careful tax planning is crucial. Wealthy folks often pay less thanks to strategies like high exemptions, trusts, gifting, and charitable donations. Learning how these strategies work can give you more control over your own estate planning, allowing you to reduce unnecessary taxes.

Whether you’re part of a high-net-worth family or simply looking to protect your own wealth, it’s never too early to start planning for a smoother transfer to your heirs.