Why a $5 Million+ Portfolio Changes Your Entire Estate Plan

The late hip-hop artist the Notorious B.I.G. likely didn’t have estate planning in mind when he recorded his chart-topping hit, "Mo Money Mo Problems." But the sentiment rings undoubtedly true. The more wealth you have, the more complex the estate decisions surrounding everything from taxes to paperwork.

As an estimated $124 trillion begins to change hands, many families are now trying to figure out how to end up on the winning side of the "Great Wealth Transfer."

Someone with an estate of $5 million or more, experts say, sits in "very-high-net-worth" territory, where a simple will no longer cuts it. At this level, where you live and what you own ultimately determine what stays with your estate and how easily your heirs can inherit it.

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As Matthew Chancey, CFP® and founder of Tax Alpha Companies, frames it, "At $5 million, the question isn’t how much you leave. It’s what kind of money you leave."

Federal and state estate taxes

Despite the ominous name, the federal "death tax" is not what most people — even many high-net-worth individuals — have to fear. That's because the federal estate tax exemption is $15 million per person, or $30 million for a married couple. So a $5 million estate sits comfortably below that threshold.

However, that doesn't mean your estate is totally off limits. "The federal estate tax probably isn't your problem, but your state's might be," says Jeff Judge, CFP® and founding partner of Chesapeake Financial Planners. He says couples often mistakenly assume the big federal number protects them.

Twelve states plus Washington, D.C., levy their own estate tax, and five impose an inheritance tax, often with exemptions far below the federal level. For example, Judge points to his home state of Maryland, which has an exemption of just $5 million per person, a top rate of 16% and a separate inheritance tax. Other states bite even sooner, such as Oregon, where the estate tax starts at $1 million.

To minimize the state tax hit, Clark Randall, CFP® and director of financial planning at Creekmur Wealth Advisors, suggests including a provision in your will to create a credit shelter trust (CST), sometimes called a spousal bypass trust. It "allows the executor to shelter the assets from taxation at the death of the first spouse to die while still providing for the survivor's living needs," he says.

Where you live can, therefore, become an estate planning decision in itself. Eileen Olson, CFP® and founder of Emerald Wealth, had one family weigh the cost and choose to stay put to remain near their children and grandchildren.

"What matters," Olson says, "is making the choice knowingly."

Leaving heirs an inheritance, not a tax bill

With an estate of this size, advisers say planning should focus more on income tax than estate tax. What heirs keep is largely determined by the type of money involved — generally, the split between pre-tax and taxable assets.

Under the SECURE Act, most non-spouse heirs must empty an inherited IRA or 401(k) within 10 years. Should your heirs inherit your IRA during their highest-earning years, when every withdrawal stacks on top of their salary, it becomes a major tax burden.

Roth conversions offer one option. By converting pre-tax savings to a Roth during lower-income years, the tax is paid at your rate instead of your children's. "We have used low income tax years for many clients to do partial Roth IRA conversions that create a true tax-free legacy for heirs," says Jorge Padilla, CFP® and wealth adviser at Meira Wealth.

How you handle substantial appreciated assets also shapes the tax situation your heirs will face. Appreciated assets — a home, a business, a portfolio of stock — get a stepped-up basis at death, erasing the built-in capital gain for your heirs. Therefore, it's often best to wait, as handing them over while alive transfers the original, lower cost basis to your kids, sticking them with the capital gains tax.

"I wouldn't go crazy giving assets away to the next gen when you can grow that wealth and get a step-up in basis at your passing," says Marianela Collado, CFP® and wealth adviser at Tobias Financial Advisors.

To avoid this mistake, Chancey suggests a simple rule of thumb: "Give cash, not the things that have grown, or your kids get your old tax bill with the gift."

What if most of your wealth is illiquid?

If much of your wealth is tied up in a business, real estate or concentrated stock, heirs can be forced into a fire sale to cover taxes and expenses.

"Illiquid estates fail on cash, not on value," Judge says. He describes a client with a paid-off home, a rental property and a large IRA, whose children stood to inherit the real estate and a tax bill with nothing liquid to pay it. In this situation, he recommends life insurance held outside the estate, a buy-sell agreement for a business and a written plan for who runs what.

Equally overlooked is protecting the inheritance once it lands. Leaving money to adult children outright can expose it to their creditors, lawsuits and divorces. Collado offers a sobering scenario: you give everything outright to a child who the next day causes an accident and gets sued, and that inheritance becomes fair game. She says if you leave it in a trust instead, "that lawsuit wouldn't be able to touch those assets. That is something people rarely think about."

Gifting and giving while living

You can also shift wealth during your lifetime, tax-free, in bite-sized pieces. Those who want to give an early inheritance, for instance, might consider cash or other alternative financial gifts.

In 2026, you can give up to $19,000 per recipient ($38,000 for a couple) to as many people as you like, pay someone's tuition or medical bills directly, or "superfund" a 529 college plan with five years of gifts at once.

Charitable giving deserves special care, because which account you give from matters. Padilla recalls a client whose trust left 20% to charities and university foundations. On review, his team had her redirect that gift to come from her IRA instead, which spared her heirs the 10-year tax bomb while they inherited the step-up assets. "That move alone saved tens of thousands of dollars in taxes to her family," he says.

People and paperwork

So what does $5 million actually require? Judge says that while a $1 million estate needs a will, powers of attorney and current beneficiaries, a $5 million estate would benefit from adding layers like a revocable trust, state-tax planning and a liquidity plan.

But there's a risk of making your estate more complex than it needs to be. Padilla warns that elaborate structures are sometimes sold "to justify high fees when a simpler approach may be sufficient." His advice is to coordinate among a team consisting of an estate attorney, CPA and financial adviser to help.

The most important people to speak to might be those closest to you. Communicating your intentions heads off the conflicts that could erupt, especially as life and laws change. That's why Olson recommends treating an estate plan as a "living plan," one that should change "when a child or grandchild is born, when a marriage begins or ends, when you move, and when the law changes."

After all, you worked hard to make more money and don't want to leave more problems.

Read More

• Protect Your Family's Future: Avoid These 12 Common Estate Planning Mistakes
• The 'Die With Zero' Rule of Retirement
• Don't Wait Until You're Gone: Why Retirees Are Giving Away Wealth Early
• How 30 Everyday Millionaires Are Splitting Their Inheritances and Discussing Money With Their Kids