After someone passes away, the government may take a slice of what they’ve left behind through estate taxes. How much gets taken depends on the estate’s value. However, there are also plenty of ways to cut down the amount and keep more of your hard-earned wealth with those you’re looking to support.
In this post, you’ll learn the basics of how estate taxes work at federal and state levels (including here in Wisconsin) and how they differ from inheritance taxes. We’ll also cover some planning tips that can make all the difference in ensuring the legacy you’ve built is protected and passed on the way you want.
What Is an Estate Tax?
Estate taxes are designed to apply to the value of everything you own at the time of your passing—from real estate and investments to personal items like artwork or jewelry. The government views your estate as a single entity that must settle any potential tax obligations before your assets can be distributed to the people or causes you care about.
How are estate tax obligations determined?
Different assets—like homes, retirement accounts, or business interests—can vary widely in value. Each item generally needs to be appraised at its fair market value. From there, allowable deductions (like debts, mortgages, or final expenses) might reduce the taxable portion of your estate.
What estate tax laws will apply to you?
Once your estate has been properly valued and all deductions have been made, the remaining amount could be subject to estate and gift taxes at both federal and state levels. Each year, the IRS sets a federal estate tax exemption threshold. If your estate’s value goes beyond it, you’ll owe federal estate taxes.
Some states also impose their own estate taxes. These can exist at much lower exemption thresholds—so you might owe state taxes even if you’re below the federal limit. Moreover, if your estate is large enough, you may be responsible for paying both.
Does Wisconsin Have an Estate Tax?
Wisconsin currently does not levy a state estate tax. That said, many states do impose their own state-level estate tax. It’s important to keep these in mind as they may still have implications for you and those you’re looking to support.
The following locations impose their own state-level estate taxes:1
- Oregon
- Illinois
- Hawaii
- Vermont
- Maryland
- Minnesota
- New York
- Rhode Island
- Connecticut
- Washington
- Maine
- Massachusetts
- The District of Columbia
Please Note: Even though Wisconsin doesn’t have its own estate tax, you might still owe estate taxes in another state if you own property or other assets there. It’s worth reviewing tax laws with a professional in any state where you hold significant assets to avoid surprises.
What’s the Difference Between an Estate Tax and an Inheritance Tax in Wisconsin?
Before we dive deeper into estate taxes, let’s clarify a common mix-up.
An “estate tax” and an “inheritance tax” are not the same thing, even though the terms are often used interchangeably – and both could affect Wisconsin residents – remember, estate taxes refer to levies on the overall value of someone’s estate before it’s divided among beneficiaries and can be imposed at both the federal and state level.
Okay, but what about inheritance taxes?
Inheritance taxes, in contrast, are placed on the individuals who receive assets, potentially applying a separate tax bill for each beneficiary based on what they inherit. There is no federal inheritance tax, and only a few states impose their own inheritance tax.
Another point of confusion can center around gift and estate tax exemptions. Estate exemptions allow you to shield a chunk of your estate if it’s under specified government thresholds. However, inheritance exemptions are linked to your relationship with a beneficiary and their inheritance size. Some states exempt close relatives or smaller inheritances while imposing a heavier tax rate on distant relatives or larger windfalls.
Will I have to worry about inheritance taxes in Wisconsin?
Wisconsin does not impose a state-level inheritance tax. That said, inheritance taxes may become a factor if you inherit property in a state with an inheritance tax or if you move your primary residence in the future. You may also encounter other taxes tied to an inheritance, such as capital gains taxes, when selling an inherited property in Wisconsin.
Please Note: If you’re interested in learning which states impose an inheritance tax or how related taxes, like capital gains, might affect you in Wisconsin, check out our article on Wisconsin inheritance tax.
Federal Estate Tax Rules
While there is no Wisconsin estate tax, federal estate tax rules can still apply. Once your estate’s value exceeds the federal estate tax exemption, the IRS can step in and require a portion to go toward taxes. It’s important to fully understand federal threshold level, tax rates, and potential legislative changes.
Here’s what you need to know:
The 2025 Federal Estate Tax Threshold: Starting this year, each individual can transfer up to $13.99 million, during life or at death, without incurring federal estate and gift taxes. Married couples can combine their exemptions, raising their tax-free threshold to $27.98 million.2 It’s worth bringing up portability, which is a provision that allows a surviving spouse to utilize any remaining portion of their deceased partner’s exemption that was not previously used.3 Any estate value exceeding these amounts will be subject to federal taxes.
Graduated Tax Rates: One reason estate taxes can be so intimidating is that they’re structured to increase as the size of your taxable estate grows. Rates start at 18% and can climb to as high as 40%.4 This setup means the more valuable your estate, the more you could owe in taxes—a reality that underscores how important it is to plan carefully and minimize any possible estate tax liability.
Tax Cuts And Jobs Act Legislation: Currently, the Tax Cuts and Jobs Act (TCJA) gives estates a higher exemption limit. However, the TCJA is set to sunset in 2026, lowering the federal exemption to about half its current amount (around $7 million), adjusted for inflation.5 If you’re close to that boundary, you’ll want to stay informed regarding this legislation so you can adjust accordingly. Failure to do so could mean a large portion of your estate is suddenly taxable—something that could’ve been mitigated with the right strategies.
How to Reduce Estate Taxes in Wisconsin
It’s understandable to feel nervous when you see how big a piece the IRS can potentially take from your estate. The good news is there are several ways to reduce your estate taxes. Let’s explore various strategies you can use in Wisconsin to keep as much of your legacy intact as possible.
Here’s how you can potentially reduce your estate tax liability:
Gifting assets during your lifetime: One of the easiest ways to manage estate taxes is by giving some of your assets away while you’re still around. Using the annual gift tax exclusion, you can transfer a certain amount of money or property to each recipient every year without eating into your lifetime exemption. This strategy not only helps you share your wealth gradually, but it can also shrink your taxable estate over time.
Irrevocable trusts: Placing certain assets in an irrevocable trust removes them from your estate, meaning they’re no longer considered yours for tax purposes. This can be particularly useful for high-value items or large sums of cash. An example is an Irrevocable Life Insurance Trust (ILIT), which holds a life insurance policy, so its payout won’t count toward your estate’s total value.
Charitable contributions: Donating a portion of your estate to a nonprofit organization can lower the size of your taxable estate. In addition, philanthropic giving may offer significant income tax benefits during your lifetime, depending on how you structure the donation. If tax-advantaged philanthropy sounds like it’s up your alley, you might also consider vehicles like a donor-advised fund or a charitable remainder trust.
Life insurance policies for taxes: Even if you use gifting and trusts, there’s a chance you may still owe something to the IRS. That’s where specialized federal gift techniques or even a life insurance policy designed specifically to cover estate taxes can help. By naming your trust or heirs as the beneficiaries of a policy, you can ensure there’s readily available cash to settle tax bills without forcing your family to sell off treasured assets.
Family limited partnerships: A family limited partnership (FLP) lets you put business interests or other high-value assets into a partnership structure while you retain control as a general partner. Limited partners (often family members) own shares that carry valuation discounts due to restricted marketability and control, lowering the appraised value of the transferred assets. Over time, this can facilitate lifetime gifts that gradually move wealth out of your estate.
Please Note: The 2025 annual gift tax exclusion permits individuals to give $19,000 per person without impacting their lifetime estate and gift tax exemption. For married couples, this amount doubles to $38,000 per person.6
Other Key Estate Planning Considerations
If you call Wisconsin home, staying proactive with your estate plan is important. A well-rounded plan helps you navigate life’s changes while protecting your wealth.
Here are some key steps to consider:
Start As Early As Possible: Starting early with estate planning offers multiple benefits. Not only can you keep up with any shifts in state tax laws or federal regulations, but you can also adjust your plans when you hit key life milestones—like marriages, divorces, births, or business sales.
Get Key Documents In Order: Building a solid estate plan starts with having the right paperwork in place. This includes drafting or updating wills, trusts, healthcare directives, and powers of attorney. It’s equally important to review beneficiary designations to ensure they reflect your current wishes and any recent life changes. Keeping these documents accurate and up to date can provide clarity and ease the process for your family down the line.
Put Together An Estate Planning Team: Work with a financial advisor, accountant, and estate planning attorney to create a complete strategy. Financial advisors can help project tax implications over time and align investments with your legacy goals, accountants offer guidance on compliance and tax-saving opportunities, and estate planning attorneys make sure your legal documents are tailored to protect and distribute your assets as you intend.
Common Questions About Wisconsin Estate Tax Rules
Even though Wisconsin doesn’t impose its own estate tax, many questions still come up about how best to manage estates and minimize taxes in the state. Below, we’ll answer some of the most common questions so you can be better prepared.
How can I determine the value of my estate?
Assessing the overall worth of your estate starts with creating a comprehensive list of every asset you own. This includes financial accounts and securities, any real property you possess, as well as significant personal items of value.
For items that are challenging to appraise, such as artwork or property, enlisting the help of a professional appraiser can provide accurate valuations. This process gives you a clear understanding of your estate’s total worth and whether it might exceed federal estate tax limits.
Partnering with a financial planner can add another layer of precision to this evaluation. They can factor in future asset growth, outstanding liabilities, and potential tax obligations, offering a more complete picture of your estate’s value.
What estate tax implications apply to retirement accounts?
Retirement accounts like traditional IRAs and 401(k)s are generally not considered part of your estate assuming the proper beneficiary designations have been made. However, if no beneficiaries are listed, it’s possible for assets to become part of your estate if they are unable to pass by default to a spouse or children.
Retirement accounts such as traditional IRAs and 401(k)s are still counted toward your estate for estate tax purposes. However, if proper beneficiary designations are in place, they generally bypass probate.
That said, beneficiaries of retirement accounts may still have to pay taxes on the amounts withdrawn. To minimize this impact, you might consider converting traditional accounts to Roth IRAs, where distributions are tax-free. Talking with a financial advisor can help clarify if this is a good strategy for you.
Are trusts a good option for Wisconsin residents?
Trusts are versatile tools that can address a range of estate planning needs while also minimizing estate taxes. Irrevocable trusts, for example, shift assets out of your taxable estate, reducing its total value. They also come in various forms, each tailored to distinct financial or personal objectives.
Trusts offer more than tax savings; they also streamline how heirs receive their inheritance. In many cases, assets within a trust bypass the probate process, resulting in faster transfers, lower administrative costs, and greater privacy for the estate.
By working with the right estate planning professionals, you can determine if a trust is helpful to achieve your goals, making sure your assets are protected and your wishes are properly carried out.
What happens if I own property in another state with an estate tax?
If you own property in a state with its own estate tax, such as Illinois or Minnesota, your estate will need to comply with that state’s rules, even if you reside in Wisconsin. This might involve additional filings or taxes on the value of the out-of-state property.
Planning strategies, like placing the property in a trust or restructuring ownership, can help reduce or eliminate these additional taxes. Understanding each state’s tax thresholds and laws is very important for avoiding unexpected liabilities.
Final Thoughts: Securing Your Legacy in Wisconsin
Estate planning is an opportunity to make thoughtful choices about how your wealth is managed and shared. While Wisconsin doesn’t have a state estate tax, preparing for federal tax rules and other potential complexities can help you stay one step ahead.
We’re happy to collaborate with your current estate planning professionals or provide a referral. Having the proper guidance ensures your plans are tailored to fit your unique goals and values.
Taking action now can provide clarity and peace of mind for you, your family, and anyone else you are looking to help. You can streamline the process and make sure every detail receives the careful attention it deserves. We invite you to schedule an introductory call with our team today.
Sources:
- https://www.taxpolicycenter.org/briefing-book/how-do-state-and-local-estate-and-inheritance-taxes-work
- https://www.morganlewis.com/pubs/2024/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2025
- https://www.schwab.com/learn/story/how-portability-helps-couples-reduce-estate-taxes#:~:text=The%20portability%20rule%20allows%20spouses,a%20larger%20estate%20planning%20conversation
- https://www.investopedia.com/articles/personal-finance/120715/estate-taxes-who-pays-what-and-how-much.asp
- https://www.schwab.com/learn/story/countdown-gift-and-estate-tax-exemptions
- https://www.kiplinger.com/taxes/gift-tax-exclusion
Sheena is a highly regarded financial professional known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.