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 revocable trust doesn’t uniquely save on estate taxes, it offers other important benefits, such ensuring proper management of your estate if you become incapacitated and avoiding probate in multiple jurisdictions.

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 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 their life time, 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 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.

“Be aware,” cautions Dionysios Pappas, an attorney with the law firm of Vasiliadis Pappas Associates, “that almost all states have their own form of death tax. Some tax an estate based upon the value of a person’s assets (plus lifetime gifts) at death, similar to the federal estate tax. Other states, like Pennsylvania, have an inheritance tax, which tax the beneficiaries of a deceased person at a tax rate based upon the relationship of the beneficiary to the deceased person.”

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, and in Pennsylvania, state inheritance tax as well, 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 the spouse of a U.S. citizen 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: 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 two good reasons:

Asset Management

If you have no one who you completely trust to step in and manage your estate if you become incapacitated, create a revocable living trust that names a corporate entity to step in and handle your finances if you no longer can.

Avoid Probate in Multiple States

If you live in Pennsylvania but have a vacation property, a rental, commercial property, or other real estate in another state or in multiple states, a revocable living trust will enable your trustee after you pass away, to maintain and distribute these properties without having to probate your will in multiple states. The duties of a Pennsylvania executor are basically the same as those of a trustee of a revocable living trust who takes over after the settlor/beneficiary dies. So, if you don’t own real estate in other states at time of death, it may not be worthwhile to have a revocable living trust, rather than a will, as the primary tool for distributing your estate at death.

The lawyers at Vasiliadis Pappas Associates have extensive experience in helping clients avoid or minimize federal estate and Pennsylvania inheritance taxes, and in drafting and implementing revocable living trusts. Call us at 614-694-9455, we can help!