A tax-efficient will uses the marital deduction, portability elections, trust provisions, charitable bequests, and the step-up in basis to move as much of your estate as possible past federal and state tax. For 2026 the federal estate tax exemption is $15 million per person, so most estates owe no federal tax at all; the drafting decisions below matter for couples with combined wealth above $30 million, for anyone living in a state whose own estate tax kicks in at $1 million or so, and for anyone leaving large retirement accounts or highly appreciated property to heirs.1Internal Revenue Service. What’s New – Estate and Gift Tax
Who Actually Owes Estate Tax
The federal estate tax applies only to the portion of an estate that exceeds the basic exclusion amount. The One Big Beautiful Bill Act set that amount at $15 million per individual for 2026, made the higher exemption permanent, and indexed it for inflation.1Internal Revenue Service. What’s New – Estate and Gift Tax Amounts above the exemption are taxed on a graduated scale that reaches 40 percent.2Office of the Law Revision Counsel. 26 USC 2001 – Tax Imposed
The exemption is unified: it covers lifetime gifts and transfers at death together. Every dollar given away above the $19,000 annual gift tax exclusion reduces what is sheltered at death, so your remaining exemption depends on how much you have already used.3Internal Revenue Service. Gifts and Inheritances4Internal Revenue Service. Instructions for Form 709
Roughly a dozen states and the District of Columbia impose their own estate taxes, often with exemptions as low as $1 million, and a handful impose inheritance taxes paid by the recipient. Some impose both. For estates between $1 million and $15 million, this is where a tax-efficient will earns its keep, and the specific clauses you need depend on where you live.
The Marital Deduction and Its Trap
You can leave any amount of assets to a surviving U.S.-citizen spouse with zero federal estate tax under the unlimited marital deduction, provided the interest transferred is not one that terminates on a condition such as remarriage.5Office of the Law Revision Counsel. 26 USC 2056 – Bequests to Surviving Spouse This is deferral, not elimination. Tax is postponed to the survivor’s death.
Leaving everything outright to a spouse wastes planning opportunities. If both spouses have large estates, everything piled onto the survivor can push the second estate above the exemption and produce a larger tax bill at the second death than careful splitting would have produced across both. That is why tax-efficient wills pair the marital deduction with trust provisions that use each spouse’s exemption.
Portability: The Executor Instruction That Saves Millions
Portability lets a surviving spouse inherit the deceased spouse’s unused exemption. If the first spouse dies having used only $3 million of the $15 million exemption, the survivor can add the remaining $12 million to their own, sheltering up to $27 million from federal estate tax.6Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
Portability is not automatic. The executor of the first spouse’s estate must file Form 706 and elect portability on the return, even if the estate owes no tax.7Internal Revenue Service. Frequently Asked Questions on Estate Taxes The deadline is nine months after death, with a six-month automatic extension. Late relief is available for up to five years under Rev. Proc. 2022-32.8Internal Revenue Service. Instructions for Form 706 Your will should direct the executor in writing to file Form 706 and make the portability election, because an executor who assumes no return is needed on a non-taxable estate can cost your spouse millions in lost exemption.
One boundary matters: portability applies only to the federal estate tax exemption. It does not carry the generation-skipping transfer tax exemption to the surviving spouse, which is a large part of why trust-based planning still exists.
Bypass Trust Provisions
A bypass trust (also called a credit shelter trust) captures assets up to the deceased spouse’s remaining exemption and holds them in trust rather than passing them to the survivor outright. The surviving spouse can receive income and, typically, principal distributions for health, education, maintenance, or support. Because the trust rather than the survivor owns the assets, they are not included in the survivor’s taxable estate at the second death.6Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
With the federal exemption at $15 million, bypass trusts are less critical for federal purposes than they were when exemptions were lower. They remain valuable in low-threshold states and for non-tax reasons: they shield principal from the survivor’s creditors and guarantee that the assets ultimately reach the intended heirs, which matters most in blended families.
QTIP Trust Provisions
A Qualified Terminable Interest Property trust provides for a surviving spouse while controlling where the assets go afterward. The survivor receives all trust income, paid at least annually, for life. No one else can touch the principal while the survivor is alive. At the survivor’s death, the remainder passes to the beneficiaries named in the original will, typically children from an earlier marriage.5Office of the Law Revision Counsel. 26 USC 2056 – Bequests to Surviving Spouse
A QTIP qualifies for the marital deduction, so tax is deferred to the second death while the destination of the principal stays locked in. The executor must make an irrevocable QTIP election on Form 706, which is another reason the will should give clear filing instructions.
Generation-Skipping Transfers
Bequests that skip a generation, most commonly to grandchildren, trigger the generation-skipping transfer tax on top of the regular estate tax. The GST rate equals the top estate tax rate of 40 percent.9Office of the Law Revision Counsel. 26 USC Chapter 13 – Tax on Generation-Skipping Transfers Each person has a separate GST exemption equal to the basic exclusion amount, so $15 million for 2026.10Office of the Law Revision Counsel. 26 USC 2631 – GST Exemption
The GST exemption is not portable. If the first spouse dies without allocating GST exemption to a trust that will eventually benefit grandchildren, that exemption disappears. A tax-efficient will addresses this at the first death by funding a dynasty-type trust and allocating GST exemption to it. Skip this and the same assets can face both estate tax and a 40 percent GST tax, nearly doubling the burden.
Charitable Bequest Clauses
Bequests to qualified charities reduce the taxable estate dollar for dollar, with no cap on the deduction.11Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses The recipient must be a qualifying tax-exempt organization.
Wills can direct fixed dollar amounts or percentages to charity while leaving the balance to family. Formula clauses go further: they compute the charitable bequest as whatever amount reduces the taxable estate to the exemption threshold, zeroing out the estate tax while maximizing what family members receive.
Use the Step-Up in Basis
Assets passing through a will receive a new tax basis equal to fair market value on the date of death, wiping out all unrealized capital gains that accumulated during the owner’s lifetime.12Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Stock bought for $50,000 and worth $500,000 at death gives the heir a $500,000 basis; a sale the next day owes no capital gains tax.
This changes what you should give away and what you should hold. Gifting appreciated property transfers your low basis to the recipient, who owes capital gains tax on the full appreciation when they sell. Holding those same assets until death erases the gain. A tax-efficient plan routes highly appreciated assets through the will rather than through lifetime gifts.
Congress closed the obvious loophole. If someone gifts appreciated property to a person who dies within a year, and the property passes back to the original donor or the donor’s spouse, no step-up is allowed.13Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent
Coordinate the Will With Non-Probate Assets
Your will controls only assets that pass through probate. Retirement accounts, life insurance, and accounts with payable-on-death or transfer-on-death designations pay the named beneficiary directly, regardless of what the will says. If the will leaves everything to your children but the IRA beneficiary form still names an ex-spouse, the ex-spouse gets the IRA. Under ERISA, employer retirement plans must pay the named beneficiary even if a divorce decree says otherwise.
The mismatch can defeat the tax planning entirely. A will that funds a bypass trust with residuary assets accomplishes nothing if the largest asset is an IRA passing directly to the spouse by beneficiary designation, because the trust ends up underfunded. Review every beneficiary designation each time you update the will.
Retirement Accounts and the 10-Year Rule
Retirement accounts contain untaxed income, so distributions to a beneficiary are taxed as ordinary income rather than receiving a step-up. Most non-spouse beneficiaries must withdraw the entire inherited balance within 10 years of the account owner’s death, a compressed timeline that can push heirs into higher brackets when large accounts are involved.14Internal Revenue Service. Retirement Topics – Beneficiary Sending the IRA to a beneficiary in a lower bracket, or to a charity that pays no income tax, and leaving other assets to higher-bracket heirs can produce a better after-tax result than dividing everything equally. Spouses remain the most tax-favored retirement account beneficiary because they can roll an inherited account into their own IRA.
What to Gather Before Drafting
A tax-efficient will needs more input than a basic will.
- An asset inventory with current fair market values and original cost basis, because basis information drives the decisions about which assets should ride out for a step-up.
- Ownership and titling details for every asset, so you know what the will actually controls and what passes by survivorship.
- Current beneficiary designations on every retirement account, life insurance policy, and payable-on-death account.
- Copies of every Form 709 you have filed, showing how much of the lifetime exemption is already used.15Internal Revenue Service. Form 709 – United States Gift and Generation-Skipping Transfer Tax Return
An incomplete picture produces a will built on assumptions that don’t match the estate, and the tax provisions misfire.
Execution
None of the tax provisions matter if the will is not properly executed. Most states require the testator to sign in the presence of at least two witnesses, who must also sign, and the witnesses should be disinterested (they inherit nothing under the will). This is one of the few estate planning mistakes that cannot be fixed after death.
A self-proving affidavit signed by the witnesses before a notary spares them from appearing in probate court to confirm their signatures later. Store the signed original somewhere secure and accessible, and make sure the executor knows where it is and knows the plan exists. A safe deposit box can create access problems; a fireproof home safe or a professional vault avoids them.