Do I need both a CPA and an estate planning attorney?

For most people with meaningful assets, yes. An estate planning attorney drafts the legal documents — wills, trusts, powers of attorney, healthcare directives. A CPA handles the tax implications of your estate plan — gift tax returns, estate income tax returns (Form 1041), and minimizing income, gift, and estate tax across the estate transfer. These are complementary roles and your CPA and attorney should coordinate directly.

What is the federal estate tax exemption in 2026?

The federal estate tax exemption is $13.99 million per individual ($27.98 million for married couples with portability) in 2026. Estates above this threshold are taxed at rates up to 40%. Importantly, the current elevated exemption is scheduled to sunset at the end of 2025 and revert to approximately $7 million per person — though legislative action could change this. Consult your CPA and estate attorney about planning strategies given this uncertainty.

What is a stepped-up basis and why does it matter for estate planning?

When you inherit assets, your cost basis is 'stepped up' to the fair market value at the date of death, eliminating any capital gains that accrued during the decedent's lifetime. If your parent bought stock for $10,000 that is worth $200,000 at death, you inherit it with a $200,000 basis — you owe no capital gains tax on the $190,000 appreciation. This is one of the most significant tax benefits in the tax code and shapes many estate planning decisions.

Estate Planning and CPAs: What You Need to Know

May 29, 2026

The CPA's Role in Estate Planning

Estate planning is primarily a legal discipline — attorneys draft the documents that govern how your assets transfer at death. But the tax implications of an estate plan are complex and consequential, and that is where your CPA becomes essential. A well-designed estate plan that ignores tax consequences can unnecessarily transfer hundreds of thousands of dollars to the IRS rather than your heirs.

Key Estate Tax Concepts Your CPA Manages

The Federal Estate Tax

The federal estate tax applies to the taxable estate of decedents whose gross estate exceeds the applicable exclusion amount — currently $13.99 million per person in 2026. Estates above this threshold pay up to 40% in federal estate tax. For estates near or above the threshold, your CPA models different scenarios and implements strategies to reduce the taxable estate before death.

Important note on the 2026 sunset: The elevated exemption from the 2017 Tax Cuts and Jobs Act is scheduled to sunset December 31, 2025, reverting to approximately $7 million per person (inflation-adjusted). Depending on legislative action, this could significantly expand the pool of estates subject to estate tax. Planning for both scenarios is critical.

The Annual Gift Tax Exclusion

You can give up to $19,000 per recipient per year (2026 amount, indexed for inflation) to an unlimited number of people without using any of your lifetime exemption and without filing a gift tax return. A married couple can give $38,000 per recipient per year. Systematic annual gifting is one of the simplest estate reduction strategies available.

The Lifetime Gift Tax Exemption

Beyond the annual exclusion, you can give up to your remaining lifetime exemption ($13.99 million in 2026) in taxable gifts without paying gift tax. Gifts in excess of the annual exclusion must be reported on Form 709 (Gift Tax Return), even if no tax is owed. Your CPA prepares Form 709 and tracks cumulative lifetime gifts against the exemption.

Trusts and Their Tax Treatment

Trusts are taxed as separate entities in most cases. Common trust types and their tax implications:

Revocable living trust: Disregarded for income tax purposes during grantor's lifetime — income is reported on the grantor's personal return. Avoids probate but does not reduce estate tax.
Irrevocable trust: Removes assets from the grantor's taxable estate. Trust files its own return (Form 1041) and pays trust income tax rates — which compress much faster than individual rates.
Charitable Remainder Trust (CRT): Provides income to the grantor or beneficiaries for a term, with remainder to charity — generates a partial charitable deduction upfront.
Grantor Retained Annuity Trust (GRAT): Transfers future appreciation out of the estate with minimal gift tax cost — effective in low-interest-rate environments.

Stepped-Up Basis Planning

The stepped-up basis at death is one of the most valuable provisions in the tax code. Strategic planning around which assets to hold until death (to eliminate embedded gains) versus which to give during life (for other reasons) can save heirs hundreds of thousands in capital gains taxes. Your CPA analyzes your asset portfolio specifically to optimize these decisions.

Income Tax Returns for Estates and Trusts

After a person dies, their estate may continue to generate income — interest, dividends, rental income, business income — during the settlement process. This income is taxable and requires filing Form 1041 (U.S. Income Tax Return for Estates and Trusts). Trust income tax rates are extremely compressed — the top 37% rate applies to trust income above just $15,200 in 2026, compared to over $600,000 for individuals. Distributing income to beneficiaries who are in lower brackets is a key Form 1041 strategy.

Coordinating Your CPA and Estate Attorney

The most effective estate plans involve your CPA and attorney working together. Before your meeting with either professional, prepare a complete picture of: your asset types and values, beneficiary designations on retirement accounts and life insurance, any existing trusts or entity structures, and your goals for wealth transfer. This allows both professionals to design coordinated legal and tax strategies.

Find a CPA who specializes in estate and trust taxation by browsing our city directory.

Frequently Asked Questions

Do I need both a CPA and an estate planning attorney?: For most people with meaningful assets, yes. An estate planning attorney drafts the legal documents — wills, trusts, powers of attorney, healthcare directives. A CPA handles the tax implications of your estate plan — gift tax returns, estate income tax returns (Form 1041), and minimizing income, gift, and estate tax across the estate transfer. These are complementary roles and your CPA and attorney should coordinate directly.
What is the federal estate tax exemption in 2026?: The federal estate tax exemption is $13.99 million per individual ($27.98 million for married couples with portability) in 2026. Estates above this threshold are taxed at rates up to 40%. Importantly, the current elevated exemption is scheduled to sunset at the end of 2025 and revert to approximately $7 million per person — though legislative action could change this. Consult your CPA and estate attorney about planning strategies given this uncertainty.
What is a stepped-up basis and why does it matter for estate planning?: When you inherit assets, your cost basis is 'stepped up' to the fair market value at the date of death, eliminating any capital gains that accrued during the decedent's lifetime. If your parent bought stock for $10,000 that is worth $200,000 at death, you inherit it with a $200,000 basis — you owe no capital gains tax on the $190,000 appreciation. This is one of the most significant tax benefits in the tax code and shapes many estate planning decisions.