Why estate taxes aren’t the only inheritance-related costs to consider

Article | April 27, 2026

Authored by Your Firm LLC

Estate planning discussions have long centered around one headline number: the federal estate tax exemption. As of 2026, that number is $15 million per person.

Here is something new.

But focusing solely on whether an estate will owe federal estate tax overlooks a broader and more persistent issue: the many other costs that can quietly erode the wealth transferred to heirs.

In fact, many families who fall below the estate tax threshold still encounter significant financial friction when wealth changes hands. Probate fees, capital gains taxes, and overlooked administrative costs can all erode inheritances — and often in ways that are preventable with the right planning. At Your Firm, our tax and advisory professionals work with high-net-worth individuals and family business owners across the Mid-Atlantic to address exactly these kinds of risks, helping clients build estate plans that protect wealth from every angle — not just the federal tax line.

Federal estate taxes: the exception, not the rule

Let's start with the obvious. The federal estate tax is currently levied at a top rate of 40%, but it only applies to assets exceeding the lifetime exemption amount. In 2026, the lifetime exemption is at a historically high level, meaning most estates will not owe federal estate tax.

Yet that doesn't mean they'll avoid costs entirely. In fact, many of the most common expenses occur in estates well below the federal threshold — and often blindside beneficiaries who assume "no estate tax" means "no cost."

State estate and inheritance taxes: a patchwork problem

Several states impose their own estate or inheritance taxes, and often at much lower exemption levels than the federal government.

For example:

• Massachusetts and Oregon have estate tax exemptions of just $1–2 million
• New York and Washington State tax estates at rates of 16–35%
• Pennsylvania and Nebraska levy inheritance taxes on heirs, including adult children, in some cases

These state-level rules can significantly reduce the net value received by beneficiaries. And for families with real estate, business holdings, or other assets across multiple jurisdictions, state tax exposure can be layered and complex. Your Firm's State and Local Tax (SALT) specialists regularly help clients navigate exactly this kind of multi-state exposure as part of a broader, integrated estate plan.

Some states also have filial responsibility laws, which can (under certain conditions) hold adult children financially responsible for a parent's unpaid long-term care expenses. While rarely enforced historically, and typically limited to cases involving Medicaid or nursing home debts, a handful of cases in recent years have raised concerns. For now, this is more the exception than the rule, but one worth monitoring if your family is navigating elder care planning.

Probate: delays, fees, and public disclosure

Even in the absence of estate tax, the probate process can introduce delays and costs that frustrate heirs and add legal complexity.

Probate is the court-supervised process of validating a will, paying off debts, and distributing assets. While fees vary by state, they can include:

• Court filing fees
• Attorney fees (often based on a statutory percentage of the estate)
• Executor commissions
• Appraisal and accounting fees

In states such as California and Florida, these fees can easily run into tens of thousands of dollars — especially when real estate or closely held business interests are involved.

More critically, probate makes the estate a matter of public record, potentially exposing asset details, beneficiary identities, and family dynamics to scrutiny or even litigation.

Capital gains and the step-up in basis

Another overlooked issue is capital gains tax when appreciated assets are sold. It's relatively common for heirs to inherit a house. And while they may not face federal estate taxes on the house, they'll likely owe some capital gains taxes when the house is sold.

In many cases, heirs receive a step-up in basis, which adjusts the cost basis of inherited assets to their value at the date of death. That means if a parent bought their home for $100,000 and it was worth $500,000 at their death, the heir's new basis is $500,000. If the home is immediately sold for $500,000, the heir might not face capital gains taxes — but if the home is sold for more than $500,000, capital gains could come into play. If the asset appreciates further before being sold, the new gains are taxable, even if the original basis was stepped up.

It's important to note that not all inherited assets receive a step-up in basis. Tax-deferred retirement accounts, like traditional IRAs and 401(k)s, don't qualify, because they're subject to income tax when withdrawn.

Jamie Miller, CPA, Partner at Your Firm, has seen this catch families off guard more often than expected. "Clients often focus on what they're inheriting and don't think about the tax consequences of eventually selling it," he says. "The step-up in basis can be a significant benefit — but it doesn't apply across the board, and inherited retirement accounts in particular can create a meaningful income tax burden for heirs if there's no distribution strategy in place."

The bottom line is that capital gains planning should be integrated with estate planning, instead of being treated as an afterthought.

Administrative friction: the hidden cost of poor planning

Families often focus on taxes, but administrative burdens can be just as painful.

Without clear documentation, titling, or communication, heirs can face:

• Delays in accessing bank or investment accounts
• Legal disputes among siblings or blended family members
• Confusion around business succession or real estate ownership

These issues are especially common in estates with non-liquid or complex assets, such as art, collectibles, closely held businesses, or investment real estate. Valuation uncertainty, poorly defined roles, and emotional tensions can create real financial losses, even when estate tax isn't part of the picture.

Planning beyond the exemption

A well-designed estate plan should aim to minimize all sources of loss — not just federal tax exposure. Even if your estate is below the federal exemption, proactive planning can:

• Avoid or minimize probate through the use of revocable trusts
• Mitigate state-level estate or inheritance taxes
• Address capital gains exposure for heirs
• Clarify how assets will be valued, managed, and distributed
• Align ownership, titling, and instructions to reduce administrative confusion

These aren't just tax strategies — they're operational solutions, and they often have a far greater impact on your heirs' experience than any single line item on a return. At Your Firm, our approach to estate planning reflects our broader philosophy: true financial guidance means looking at the full picture, coordinating tax, advisory, and wealth management strategy so that nothing falls through the cracks.

Avoiding tax is good. Avoiding chaos is better.

Federal estate tax may grab headlines, but for most, it's not the biggest threat to a successful wealth transfer. For many families, the real risk is a tangled, time-consuming estate process that creates confusion, erodes asset value, or causes conflict between beneficiaries.

"We find that the families who fare best aren't necessarily the ones with the largest estates — they're the ones who planned ahead," says Miller. "A clear, coordinated plan doesn't just minimize costs. It keeps families out of conflict and keeps wealth where it's supposed to go."

That's why good estate planning is never just about tax thresholds. A truly effective plan should aim for clarity, continuity, and control — ensuring your legacy moves forward without unnecessary cost or conflict.

If you're concerned about estate-related expenses or want to ensure a smooth wealth transfer to your heirs, contact our office. At Your Firm, our tax and wealth advisory professionals take a coordinated, year-round approach to estate planning -- one that goes well beyond filing deadlines to focus on the full picture of your financial life.

Working together, our team can help you:

• Identify and mitigate state and local tax exposure across multiple jurisdictions
• Develop a capital gains and distribution strategy for inherited or transferred assets
• Design trust and estate structures that minimize costs and avoid probate
• Align your investment, retirement, and estate plans through Your Firm Wealth Management
• Prepare a clear, documented plan that reduces the risk of family conflict or administrative delay

We serve high-net-worth individuals, family business owners, and multi-generational families across the Mid-Atlantic -- and we bring the same integrated, proactive mindset to every engagement. Whether your estate is large or modest, the right plan makes all the difference. Reach out to our team to get started.