Rethinking estate planning in an era of high exemptions

With the federal estate tax exemption now at $15 million per individual — $30 million for married couples — the vast majority of investors no longer face a federal estate tax bill.¹ While estate planning remains as important as ever, today the greatest planning opportunities for most families lie not in shielding assets from estate tax, but in managing the cost basis of assets to be transferred.

Tax-smart strategies

Leverage a step-up on appreciated assets

When heirs receive assets (including stocks, real estate, and collectibles) through an estate, the cost basis is adjusted to fair market value at the date of death of the transferor. If assets have appreciated over that timeframe, the step-up in cost basis means heirs will generally owe no tax on any capital gains that accrued during the transferor's lifetime.

If you are planning to transfer wealth, you may want to consider keeping appreciated assets in your estate rather than gifting them during your lifetime, to take advantage of the combination of the potential for stepped-up cost basis and high estate tax exemption.

Keep in mind that if assets have depreciated, however, the cost basis may be stepped down.

Pair cost basis planning with annual gift tax exclusion

The annual gift tax exclusion allows you to make tax-free gifts of up to $19,000 ($38,000 for married couples in 2026) to an unlimited number of people per year without reducing your lifetime exemption. As an added benefit, gifting assets that are likely to increase in value keeps that future growth out of your estate.

Consider upstream giving

For investors whose parents are still living, a multi-generational approach may be an attractive strategy for passing assets with high unrealized capital gains to children. Using outright gifts and/or trusts, you first transfer assets to senior family members. When they pass away, the assets can pass to the intended heir(s) with a stepped-up cost basis. In this way, you can leverage the lifetime exemption while also capturing income tax advantages.

The power of the step-up in cost basis: a real estate example

Margaret purchased a rental property in 1985 for $200,000, which has since appreciated to $2 million.

Additional considerations

You could still owe state taxes

Even if federal estate tax is not a concern, state-level taxation may be a different story. Some states impose estate tax or inheritance taxes or both. (See table below.) The difference between the two is who bears the burden. Similar to the federal estate tax, an estate tax at the state level is levied on the transferor. The tax is paid out of the estate before any distributions are made to heirs or other beneficiaries. In contrast, the burden of an inheritance tax is borne by the beneficiary who receives the transferred assets.

Exemption thresholds for estate taxes vary widely and may be far lower than the federal amount. In some cases, the exemption threshold is less than $2 million. The tax rates also vary, and can be as high as 20%.

States and districts that impose estate and/or inheritance tax²:

Ultra-wealthy individuals may still benefit from traditional estate tax planning

For individuals whose total assets exceed the $15 million threshold, traditional estate tax planning remains essential. Consider layering a range of strategies — including charitable giving, lifetime gifting programs, select trust structures, and real estate tools like 1031 exchanges and UPREITs — to help manage tax exposure while supporting your broader wealth transfer goals.

Today's tax landscape creates new opportunities for optimization by shifting focus from avoiding estate tax to managing cost basis. The right strategies for you will depend on a number of factors, such as total asset levels, asset composition, family situation, and your specific objectives, including level of control over assets. That's why working with a financial professional is essential for building a tailored plan designed to help you reach your financial goals.

Please consult your financial professional for more information and guidance with your specific situation. For financial professionals, please contact Nuveen at 800-221-9271.