For many, ensuring against excessive estate taxes is essential to protecting their financial legacy and heirs. While Virginia does not impose state estate or inheritance taxes, federal estate tax laws still apply.
Although estate taxes only apply to the very wealthy now, the upcoming potential changes in federal estate tax laws mean they will soon affect a wider swath of individuals. If you have significant property or investments, the changes in these laws could add to the already challenging job of managing your estate in a way that maintains its value. At Melone Hatley, P.C., our team of Richmond, Virginia estate tax planning attorneys are here to help you understand how estate taxes work, how they may affect your estate and your heirs’ inheritances, and ways you can protect your financial legacy for your loved ones.
Understanding Estate Taxes
Estate taxes are taxes imposed by the state or federal government on assets left to your heirs after you die. Sometimes referred to as “death taxes,” estate taxes are assessed based on the estate’s value at the time of your death. The estate typically pays the estate taxes before the distribution of assets to your beneficiaries.
Virginia has no state-level estate taxes, but federal estate taxes remain a consideration. If your estate is subject to these taxes, they can significantly reduce the value of your estate available to your heirs.
The federal estate tax exemption for 2025 is $13.99 million for individuals and $27.98 million for married couples. This means you can transfer up to these amounts without incurring federal estate taxes. Anything over the exemption is subject to tax rates from 18 to 40 percent, depending on the value of the taxable estate.
As of December 31, 2025, however, these elevated exemptions are set to revert to pre-2018 levels. This means the estate tax exemption would be reduced to approximately $5 million per individual, adjusted for inflation, beginning in 2026. Consequently, many more estates will be subject to federal estate taxes in the upcoming years.
How Do You Calculate the Value of Your Estate For Estate Tax Purposes?
The first step in estate tax planning is determining the value of your estate. This will include real estate, businesses, investments, retirement accounts, personal property, and life insurance policies. Having an accurate valuation will help you understand whether your estate might be subject to federal estate taxes.
What Deductions Can You Take When Calculating Estate Taxes?
The estate tax exemption is not a “deduction” per se, but it does shield a significant portion of an estate from taxation. Other deductions are also allowed when calculating for estate taxes, which can further reduce the taxable value of your estate. These deductions can be subtracted from the gross estate to arrive at the net taxable estate:
- Your funeral costs and other administrative expenses, such as executor fees and attorney and accounting fees related to the settling of the estate, and other costs associated with managing and distributing assets
- Any debts or liabilities owed by you at the time of your death, such as mortgages, outstanding personal loans, credit card balances, medical bills, and other unpaid expenses
- Any bequests you made to a charitable organization
- Assets passed directly to your surviving spouse under the unlimited marital deduction, deferring the tax until their death
- State death taxes are deductible
- Casualty or theft losses to an estate asset
- Transfers of assets to a spouse through a Qualified Domestic Trust (QDOT)
- Certain business-related deductions
By planning ahead and using deductions and other strategies, you can reduce your taxable estate and preserve more assets for your heirs.
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What Strategies Are Available to Minimize Your Estate Taxes?
If you are looking for ways to reduce the taxable value of your estate, ensuring more of your assets pass to your beneficiaries, there are many strategies available, depending on your unique circumstances.
Annual Gifting
An individual can give up to $19,000 (as of 2025) under the IRS Gift Tax Exclusion to any number of recipients without affecting their lifetime estate tax exemption. For married couples, this means they can give up to $38,000 to recipients annually.
Annual gifts will reduce the size of your taxable estate while providing financial benefits to your beneficiaries. Annual gifting allows you to transfer assets tax-free over time while simultaneously reducing the taxable value of your estate.
Gifting an Asset to Freeze Its Value
Furthermore, when an asset is gifted during your lifetime, its value is frozen at the time of the gift for estate tax purposes. By freezing the value of the asset, any future appreciation is not subject to estate taxes. This ensures wealth is transferred to your beneficiaries in a more tax-efficient manner.
Creating Trusts
Trusts are versatile tools for managing and protecting assets while reducing tax exposure. Common trusts that are often used to shield assets from estate taxes include:
- ILIT or Irrevocable Life Insurance Trusts
- Bypass or CST – Credit Shelter Trusts
- QPRT or Qualified Personal Residence Trusts
- GRAT or Grantor Retained Annuity Trusts
- CRT or Charitable Remainder Trusts
- Dynasty Trusts
- SLAT or Spousal Lifetime Access Trusts
- GST or Generation Skipping Trusts
Each type of trust is designed to address a family’s unique circumstances. By effectively utilizing trusts, you can preserve your wealth while minimizing your estate taxes.
Jointly Titling Property
Adding a joint owner to real property means that the property will transfer directly to your co-owner upon your death outside probate, simplifying the transfer. If the co-owner is your spouse, its value is excluded from estate taxes after your death due to the unlimited marital deduction.
Forming a Family LLC
A Family Limited Liability Company (LLC) allows you to transfer ownership of assets to multiple family members while retaining management control. Ownership interests in the LLC can be gifted to family members using the annual gift exclusion to reduce the taxable estate over time.
Working With an Experienced Estate Tax Planning Lawyer
Estate taxes can eat up a sizable chunk of your estate’s value before your heirs ever see their inheritance. By employing one or more of these strategies, you can effectively reduce your estate taxes and preserve more of your wealth for your heirs. Working with one of our Richmond estate tax planning attorneys at Melone Hatley, P.C. ensures any estate tax approaches are tailored to your specific circumstances, including Estate Planning for Second Marriages.
What Other Taxes Should You Consider Beyond Estate Taxes?
While estate taxes often receive the most attention, they are not the only taxes and costs that may affect your estate and beneficiaries. Other taxes, such as income and capital gains taxes can also reduce the value of the assets available to your heirs.
Income Taxes
Inherited retirement accounts, such as 401(k)s or IRAs, are subject to income tax when distributions are taken. The amount of the tax will depend on that individual’s tax bracket and the type of account. Furthermore, most non-spouse beneficiaries of retirement accounts must fully withdraw the funds in an inherited account within 10 years of the original owner’s death, thereby increasing their tax burden.
Capital Gains Taxes
When an inherited asset is sold, the new appreciated value will be subject to capital gains taxes. Your heirs will be responsible for any capital gains taxes from the sale of that asset in the future.
State and Local Probate Taxes and Fees
State and local probate taxes and fees will apply to any assets that go through the probate process in Virginia. The state of Virginia imposes a state probate tax of $1 for every $1,000 of the estate’s value. Some counties and cities also charge an additional local probate tax.
Other State and Local Taxes
While Virginia doesn’t have inheritance or estate taxes, you may own property or other assets in states that do. If so, your heirs will be required to pay state estate taxes for those assets.
You can minimize tax burdens on your heirs by
- Utilize the Step-Up Basis on appreciating investments
Your heirs will benefit from the step-up basis which adjusts the value of an inherited asset to its value at the time of your death, thereby reducing capital gains tax burdens when the asset is sold. Conversely, gifting these assets during your life will retain the original purchase price as the basis, resulting in possible higher capital gains taxes for your heirs when the asset is sold. - Convert your Traditional IRA to a Roth IRA
Because Roth IRAs are funded with after-tax dollars, your heirs can withdraw the funds tax-free. By converting a traditional IRA to a Roth IRA during your lifetime, you will pay the taxes now and eliminate the tax burden on your beneficiaries later. - Plan for future retirement account distributions
Work with your attorney or financial advisor to strategize how and when distributions from retirement accounts should occur to minimize the tax impact on your heirs. - Establish trusts
Trusts can avoid probate, preserve your estate, protect your heirs, and manage how and when assets will be distributed to your beneficiaries, which can help reduce tax liabilities.
Taking a Holistic Approach to Taxes While Estate Planning
Estate planning isn’t just about avoiding estate taxes. It is also about considering and addressing all potential tax implications that could potentially affect your loved ones and heirs. By considering all possible taxes, you can create a comprehensive estate plan that minimizes their tax burden and preserves as much of your wealth as possible for them.
Creating and regularly reviewing your estate plan with an experienced estate tax planning attorney will ensure it remains effective and accounts for changes in the tax laws and your personal circumstances. Whether your estate is substantial or modest, strategic and proactive planning can protect your legacy and provide peace of mind for you and your family.
At Melone Hatley, P.C., our experienced Richmond, Virginia estate tax planning attorneys are here to guide you through the complex world of estate and other inheritance taxes. For over a decade, we have helped clients navigate the estate planning process, constructing strategic plans that protect their wealth while minimizing taxes. Schedule a free consultation with one of our client services coordinators by calling us at (804) 581-8064 or reaching out to us through our contact form.