Maximizing Wealth Transfer: Estate, Gift and GST Tax Exemptions

If you have significant wealth and have begun thinking about the financial legacy you want to leave future generations, you are far from alone. In fact, Cerulli Associates, a financial services research and consulting firm, projects that Americans will transfer as much as $124 trillion in assets to heirs through 2048. In what has been dubbed the “Great Wealth Transfer” by media outlets, most of this wealth will transfer from baby boomers to Gen Xers and Millennials, with $105 trillion going to heirs and $18 trillion going to charities.

To help maximize your wealth transfer, tax efficiency must be a top priority. By transferring your wealth in the most tax-efficient manner, you’ll pass along more of the wealth you’ve worked so hard to build and preserve for future generations. And while there are numerous estate planning tools available to help you achieve this goal, four key tax benefits and strategies play a role in estate plans for families with substantial wealth:

1. The lifetime gift and estate tax exemption
2. The annual gift tax exclusion
3. The Generation-Skipping Transfer (GST) annual exclusion
4. The GST lifetime exemption

While you are likely at least somewhat familiar with these tax benefits, even many financially savvy individuals are unclear on how these tax rules work and just how powerful they can be.

Here, we’ll discuss the federal estate, gift and GST taxes as well as their respective exemptions and annual exclusions. Then we’ll explore two giving strategies leveraged by high-net-worth and ultra-high-net-worth families to maximize wealth transfer, and we’ll briefly cover state-level transfer and inheritance taxes.

Federal estate and gift taxes

Let’s begin by diving into what federal estate and gift taxes are and how their annual exclusions and exemptions work.

The estate tax

The estate tax is levied on property you transfer at death. The value of your taxable estate above the lifetime estate and gift tax exemption, which is currently $13.99 million, is subject to a flat tax of 40 percent, while amounts below that threshold do not incur tax at all. (Note: There can also be a separate estate tax or inheritance tax in certain states.)

The gift tax

The gift tax is like the estate tax except that it applies to property you transfer during your lifetime instead of property that you transfer at death. Indeed, it was created by Congress to prevent wealthy families from circumventing the estate tax by making lifetime gifts instead. It even has the same tax rates and shares the lifetime exemption with the estate tax.

The lifetime gift and estate tax exemption

The lifetime gift and estate tax exemption affords every taxpayer an opportunity to pass on a certain value of property to heirs during life and/or at death without paying gift or estate tax. Because this is a unified exemption, the gifts you give during your lifetime can impact the exemption available for the property you transfer at death.

As a result of the Tax Cuts and Jobs Act (TCJA), the exemption amount doubled from $5 million in 2017 to $10 million in 2018. What’s more, the exemption amount was adjusted annually for inflation. Thanks to high inflation in recent years, the 2025 total exemption amount per taxpayer is at an all-time high of $13.99 million. The One Big Beautiful Bill Act (OBBBA) increased the exemption to $15 million indexed for inflation starting in 2026.

The annual gift tax exclusion

In addition to the incredibly powerful estate and gift tax exemption under current law, there is another tool at your disposal: the annual gift tax exclusion. As the name implies, the annual gift tax exclusion is applicable only to present interest gifts. The annual exclusion enables you to give away smaller amounts of money each year without paying gift tax and without impacting your available lifetime estate and gift tax exemption. The annual gift tax exclusion is currently $19,000 per taxpayer, per donee, up from $18,000 in 2024.

The federal generation-skipping transfer tax

Next up is the generation-skipping transfer (GST) tax. Like the gift tax, this, too, was devised by Congress to address a planning strategy used by wealthy families. In fact, prior to 1976, generation-skipping wealth transfers were quite popular. The idea was that you could pass assets to multiple generations of your family while paying estate or gift tax only once rather than your wealth being taxed each time it passed through another generation’s estate. To partially block this strategy, Congress enacted the GST tax in 1976 and later updated it in 1986.

While the GST tax doesn’t impose a tax each time property passes to a future generation, it does add one level of tax on transfers that skip at least one generation. In other words, the GST tax is paid in addition to any applicable estate or gift tax on wealth transfers to grandchildren and the generations that come after them. The GST tax rate is the same as the estate and gift tax rates and is applied in a manner that makes the total tax liability of a generation-skipping transfer the same as it would be if it had transferred through two estates.

To help avoid the GST tax, you may want to look into creating a dynasty trust, which can allow assets to be passed down to multiple generations without incurring additional taxes at each level. But they can be complicated so you’ll want to consult with a knowledgeable estate planning attorney to determine if setting one up is right for you.

The GST tax lifetime exemption

The GST tax lifetime exemption functions similarly to the lifetime estate and gift tax exemption. Indeed, the exemption amount matches the lifetime estate and gift tax exemption, which is currently $13.99 million. It’s important to note that the GST lifetime exemption is separate from the lifetime estate and gift tax exemption (i.e., it is not a unified exemption). So, this means that if you deplete your lifetime estate and gift tax exemption, you won’t necessarily deplete your GST lifetime exemption—although when leaving money to grandchildren and other future-generation family members, these exemptions can be applied concurrently. The OBBBA also increased the GST exemption to $15 million indexed for inflation starting in 2026.

The GST tax annual exclusion

Like the annual gift tax exclusion, there is also a GST tax annual exclusion. The GST tax annual exclusion amount matches the annual gift tax exclusion amount, but the definition of what qualifies for the GST tax annual exclusion is more restrictive. For example, gifts to a life insurance trust might qualify for the gift tax annual exclusion but likely will not qualify for the GST tax annual exclusion. This year the GST annual exclusion would enable you to gift up to $19,000 to a grandchild without incurring GST tax or impacting your lifetime GST tax exemption. Here again, the GST tax annual exclusion is separate from the annual gift tax exclusion, but they can be applied concurrently, so when gifting to grandchildren, you would typically leverage both exclusions simultaneously.

How estate, gift and GST tax benefits work

While on the surface these benefits are easy enough to understand, it’s worth taking a moment to walk through two hypothetical scenarios that demonstrate how high-net-worth and ultra-high-net-worth families may use these tax benefits to help maximize wealth transfer strategically. While these scenarios represent two prevalent wealth transfer strategies, numerous possibilities exist, making it important to collaborate with your financial advisor, tax professional and estate planning attorney on a strategy that best meets your goals.

Scenario 1: Married couple with $60 million in assets

For the purposes of this example, let’s say you and your spouse have a combined $60 million of assets. You also share a desire to preserve as much of your wealth as possible for future generations. Speaking of future generations, you have adult children and several young grandchildren.

In collaboration with your financial advisor, tax professional and estate planning attorney, you decide this year is the right time to start planning, thanks to the historically high lifetime estate, gift and GST tax exemptions of $13.99 million per taxpayer. Because you are married, that means you and your spouse can transfer a combined $27.98 million into trusts for future generations, fully exhausting both sets of your exemptions.

While you’ve been able to transfer just under half of your net worth to future generations tax-free, you are more than able to maintain your lifestyle well into the future with the funds that remain in your estate. So, to help amplify your financial legacy, you opt to leverage the annual gift and GST tax exclusions to help reduce your taxable estate at death by making annual gifts to each of your children and grandchildren. Over the course of many years, you make substantial reductions in your future taxable estate through these strategic gifts, helping you further maximize the financial legacy you leave behind.

Scenario 2: Married couple with $30 million in assets

In this case, let’s assume everything is the same, but instead of $60 million of assets, you’ve got $30 million. While you do feel now is the right time to plan, you are concerned that transferring the full $27.98 million available to you as a couple won’t leave you with enough assets to support yourselves well into the future.

Instead, you decide to maximize only one set of your lifetime exemptions by one spouse transferring $13.99 million into trusts for future generations. This strategy leaves you enough money to support your lifestyle well into the future while also capitalizing on today’s exemptions should they be less beneficial in the future. By exhausting only one spouse’s set of exemptions, you’ve kept the other’s intact, preserving the additional exemptions for future use.

In the meantime, because you are comfortable with the amount of money that remains in your estate, you decide to leverage the annual gift and GST tax exclusions, helping reduce your future taxable estate and ultimately transferring even more wealth to future generations.

What about state taxes?

While the focus of this article is on minimizing federal transfer taxes, some states have their own transfer taxes and even inheritance taxes (which are paid by the receiving beneficiary). Be sure to speak with your financial advisor, estate planning attorney and tax professional to determine if you live in a state that levies its own transfer or inheritance taxes. If you do, find out what steps you should take to help maximize your wealth transfer.

Start your wealth transfer plan today

If you don’t have a formal wealth transfer plan in place, now is a great time to get one started. With historically high lifetime estate, gift and GST tax exemptions in effect—and potentially even higher exemptions beginning in 2026 under the OBBBA—now is a great time for families with substantial wealth to lock in significant tax savings. Your Northwestern Mutual financial advisor is a great resource to help you begin the process.

Tax rates as of 2025, subject to change.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.

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