Kansas: Facing 2026 estate tax changes? Is your legacy protected?

Estate Tax Planning in Kansas: Navigating Federal Rules for Sunflower State Residents

For residents of Kansas, understanding estate tax planning often begins with a critical distinction: Kansas does not impose a state-level estate tax or inheritance tax. This is excellent news, as it simplifies one aspect of estate planning significantly compared to many other states. However, it does not mean Kansas residents are exempt from all estate taxes. The federal estate tax still applies, and for many families, planning for it remains an essential component of comprehensive wealth management.

Our focus here is on understanding the federal estate tax landscape as it applies to Kansans and exploring practical strategies to minimize its impact on your legacy. Proactive planning isn't just for the ultra-wealthy; it’s a crucial step for anyone wanting to ensure their hard-earned assets pass to their loved ones efficiently and according to their wishes.

Understanding the Federal Estate Tax Landscape

The federal estate tax is a tax on your right to transfer property at your death. It applies to the value of your entire estate, which includes everything you own or have an interest in at the time of your death – real estate, bank accounts, investments, businesses, life insurance policies, and more.

• 💰 Current Exemption Amount: For 2024, the federal estate tax exemption amount is a substantial $13.61 million per individual. This means that an individual's estate must exceed this value before any federal estate tax is due. For a married couple, with proper planning and utilizing portability, the combined exemption can be effectively doubled to $27.22 million.
• 🗓️ The 2026 Sunset Clause: It is critical to note that the current generous federal estate tax exemption is not permanent. Under current law, it is scheduled to revert to approximately half its current amount (around $7 million per individual, adjusted for inflation) on January 1, 2026. This legislative sunset creates a significant window of opportunity for wealthy individuals and couples to utilize the higher exemption while it lasts.
• 🤔 Why Plan Now? Even if your current estate doesn't exceed the 2024 exemption, the scheduled reduction in 2026 could bring your estate into taxable territory. Moreover, estate tax planning isn't just about avoiding taxes; it's also about asset protection, probate avoidance, ensuring your wishes are honored, and providing for loved ones with special needs.

Key Estate Tax Planning Strategies for Kansas Residents

While the federal exemption is high, strategic planning can offer significant benefits, especially with the impending reduction. Here are some key strategies to consider:

Marital Planning and Portability

One of the most powerful tools for married couples is portability. This allows the surviving spouse to use any unused portion of their deceased spouse's federal estate tax exemption.

• 🤝 How Portability Works: If one spouse dies and does not fully use their $13.61 million exemption, the unused portion (known as the Deceased Spousal Unused Exemption Amount, or DSUEA) can be "ported" to the surviving spouse. This means the surviving spouse essentially gets to add the unused exemption to their own.
• 📝 The Catch: To claim portability, the executor of the deceased spouse's estate must file a federal estate tax return (Form 706) even if no tax is due. Many couples fail to do this, thereby losing millions in potential future exemptions.
• 💡 When Portability Isn't Enough: While excellent, portability doesn't address non-tax goals like asset protection for the surviving spouse, ensuring assets pass to specific heirs (especially in blended families), or protecting against creditors or future divorce of the surviving spouse. In these cases, trusts (like AB trusts or Marital trusts) may still be advisable.

Hypothetical Case: The Johnson Family of Overland Park

David and Sarah Johnson, residents of Overland Park, Kansas, have an estate valued at $20 million. David passes away in late 2024. Without proper planning or electing portability, Sarah would only have her own $13.61 million exemption. When Sarah later passes away with an estate still valued at $20 million, her estate would owe federal estate tax on $6.39 million ($20M - $13.61M). This could amount to over $2.5 million in taxes at a 40% federal estate tax rate.

However, if David's executor timely files Form 706 to elect portability, Sarah can add David's unused $13.61 million exemption to her own. Upon her death, her effective exemption would be $27.22 million, meaning her $20 million estate would owe zero federal estate tax. This simple step, which often goes overlooked, saves the Johnson family millions.

Gifting Strategies

Gifting assets during your lifetime can be an effective way to reduce the size of your taxable estate.

• 🎁 Annual Gift Exclusion: You can give up to $18,000 (in 2024) per recipient, per year, without using up any of your lifetime gift tax exemption and without the recipient owing any tax. For a married couple, this means they can jointly give $36,000 to each recipient annually. This is a powerful tool for transferring significant wealth over time, tax-free.
• 🏡 Lifetime Gift Tax Exemption: The federal gift tax exemption is unified with the estate tax exemption. This means you can give away up to $13.61 million (in 2024) during your lifetime, beyond the annual exclusion, without owing gift tax. However, any amount used here reduces your available estate tax exemption at death. With the 2026 sunset, making larger gifts now to utilize the higher exemption could be a wise move for some.
• 🩺 Direct Payments for Education/Medical Expenses: Payments made directly to an educational institution for tuition or to a medical provider for qualified medical expenses are not considered taxable gifts, regardless of the amount. This is an excellent way to support family members without using your annual exclusion or lifetime exemption.

Irrevocable Trusts

Irrevocable trusts are often at the core of advanced estate tax planning. Once assets are transferred to an irrevocable trust, they are generally removed from your taxable estate.

• 🛡️ Asset Protection: Beyond tax benefits, irrevocable trusts can protect assets from creditors, lawsuits, and even future divorce of beneficiaries.
• 🔒 Common Types:
  • Irrevocable Life Insurance Trusts (ILITs): An ILIT is designed to own life insurance policies. When the grantor dies, the life insurance proceeds are paid to the trust, not the individual. This removes the life insurance proceeds from the grantor's taxable estate, potentially saving significant estate taxes. This is especially useful for creating liquidity to pay estate taxes or providing for heirs.
  • Grantor Retained Annuity Trusts (GRATs): With a GRAT, you transfer assets to an irrevocable trust but retain the right to receive an annuity payment for a set number of years. At the end of the term, any appreciation in the trust's assets above a certain IRS-determined rate passes to your beneficiaries tax-free.
  • Charitable Trusts (CRTs & CLTs): These allow you to make a charitable gift while retaining some income stream for yourself or your beneficiaries (Charitable Remainder Trust) or providing an income stream to charity first, with the remainder going to your beneficiaries (Charitable Lead Trust). They offer significant income and estate tax deductions.

Hypothetical Case: The Peterson Family of Wichita

The Petersons, a married couple in Wichita, own a successful manufacturing business and a substantial investment portfolio. Their combined net worth is approximately $35 million. Concerned about the 2026 estate tax exemption reduction and wanting to ensure their business succession, they work with an estate planning attorney.

Their attorney advises establishing an Irrevocable Life Insurance Trust (ILIT) to own a large life insurance policy. The annual premiums are paid using their annual gift exclusion amounts, minimizing taxable gifts. When the last spouse passes, the $10 million life insurance payout goes directly into the ILIT, outside of their taxable estate. This provides immediate liquidity to cover any potential federal estate tax obligations on their remaining assets and ensures the family business can continue without being forced into a fire sale to pay taxes. Additionally, they consider a GRAT to transfer future appreciation of some growth-oriented investments to their children with minimal gift tax consequences.

Charitable Giving

For those with philanthropic goals, charitable giving can be a powerful estate tax planning tool. Assets transferred to qualified charities are generally exempt from federal estate tax.

• ❤️ Direct Bequests: You can name a charity as a beneficiary in your will or trust for a specific amount or a percentage of your estate.
• 💡 Charitable Remainder Trusts (CRTs): You transfer assets to a CRT, receive an income stream for life or a term of years, and then the remainder goes to charity. This provides an immediate income tax deduction and removes the assets from your taxable estate.

Business Succession Planning

For business owners in Kansas, integrating business succession into estate tax planning is crucial. A business can be a significant portion of an estate's value and can present liquidity challenges if not planned for.

• 📊 Valuation Issues: Accurately valuing a privately held business is complex and critical for estate tax purposes.
• 📜 Buy-Sell Agreements: These agreements dictate how a business owner's share will be handled upon their death, disability, or retirement. They can help establish a fair purchase price and ensure a smooth transition, potentially reducing estate tax litigation.
• 📈 Strategies for Business Owners: Family limited partnerships (FLPs) or limited liability companies (LLCs) can be used to transfer business interests to younger generations at a reduced gift or estate tax value.

Common Mistakes in Kansas Estate Tax Planning

Even with favorable state tax laws, common missteps can undermine the best intentions.

1. 🛑 Procrastination: Waiting until health declines or legislative changes are imminent can limit planning options or create unnecessary stress.
2. 🚫 Assuming the High Exemption Means No Planning Is Needed: Many focus solely on the federal exemption and overlook other crucial aspects like probate avoidance, asset protection, incapacity planning, and the looming 2026 sunset.
3. DIY Planning: Relying on online forms or generic advice without professional input can lead to errors, omissions, and unintended consequences that cost far more in the long run than attorney fees.
4. 🔄 Failing to Update Plans: Estate plans are not set-it-and-forget-it documents. Changes in family circumstances (births, deaths, marriages, divorces), financial situations, or tax laws necessitate regular reviews.
5. 💰 Ignoring Liquidity: Even if an estate has a high net worth, if that wealth is tied up in illiquid assets (like real estate or a business), there might not be enough cash to pay estate taxes or administrative expenses without a forced sale.
6. 🌍 Overlooking Out-of-State Assets: While Kansas has no state estate tax, if you own real estate in a state that does, your estate could still be subject to that state's taxes.

The Value of Professional Guidance & Potential Savings

The true "compensation range" in estate tax planning isn't a payout, but rather the immense value gained in avoided taxes, preserved wealth, and peace of mind. The cost of not planning can be staggering.

The Cost of Inaction:

• 💸 Federal Estate Tax: If your estate exceeds the exemption and you haven't planned, your heirs could pay 40% of the taxable amount in federal estate taxes. For an estate that is $5 million over the exemption, this is $2 million lost.
• 🚫 Lost Portability: Failing to file Form 706 for portability could cost a surviving spouse millions in unused exemption.
• ⏳ Probate Costs and Delays: Without proper planning (e.g., using a revocable living trust), your estate may go through probate, a public, often lengthy, and costly court process. In Kansas, attorney fees for probate can range from 3% to 5% of the gross estate, plus court costs and other administrative expenses. For a $1 million estate, this could mean $30,000 to $50,000+ in fees, not including potential lost investment opportunities during delays.

The Investment in Professional Planning:

Engaging an experienced estate planning attorney in Kansas is an investment that typically pays for itself many times over.

• ⚖️ Attorney Fees: For comprehensive estate plans involving basic wills, powers of attorney, and a revocable living trust, fees in Kansas might range from $3,000 to $7,000. For more complex plans incorporating advanced tax planning strategies like irrevocable trusts, GRATs, or business succession plans, fees could range from $7,500 to $25,000 or significantly more, depending on the complexity and scope of assets.
• 📈 Financial Advisor Fees: A financial advisor typically charges a percentage of assets under management (e.g., 0.5% - 1.5% annually) or an hourly/flat fee for advice.

Example of Potential Savings: The Rodriguez Family of Topeka

The Rodriguez family, with an estate valued at $25 million in Topeka, consults an estate planning attorney in 2024. Their attorney helps them establish a comprehensive plan that includes using the current high gift tax exemption to transfer $5 million worth of appreciating assets to an irrevocable trust for their children, and they properly elect portability for Mr. Rodriguez's unused exemption upon his passing. By strategically utilizing the current federal exemption and gifting strategies, they project to reduce their taxable estate by over $10 million before the 2026 sunset. If they had simply waited until 2026, when the exemption reduces, they might have faced federal estate taxes of $2-4 million. Their initial investment in legal fees, likely in the $15,000 - $30,000 range for such a complex plan, pales in comparison to the millions saved for their heirs.

Steps to Take Today

Don't leave your legacy to chance. Here are actionable steps for Kansas residents:

1. ✅ Consult an Experienced Kansas Estate Planning Attorney: This is the most critical step. An attorney specializing in estate planning understands federal tax laws and can tailor a plan specifically for your family's unique situation and goals.
2. 📂 Gather Your Financial Documents: Compile information on all your assets (bank accounts, investment portfolios, real estate deeds, business interests, life insurance policies) and liabilities (mortgages, loans).
3. 📑 Review Your Current Estate Plan: If you already have a will or trust, review it with your attorney to ensure it aligns with current tax laws, your present wishes, and your financial situation.
4. 🗣️ Discuss Your Goals: Be clear with your attorney about your wishes for your assets, beneficiaries, charitable intentions, and any concerns you have about family dynamics or specific assets.

The absence of a Kansas state estate tax is a relief, but the federal estate tax, especially with its scheduled changes, demands careful attention. Proactive, professional estate tax planning is not merely a legal formality; it's a profound act of stewardship that protects your legacy and provides enduring security for your loved ones in the Sunflower State.

Disclaimer: This article provides general information about estate tax planning in Kansas and is not intended as legal advice. The information is for educational purposes only and should not be relied upon as a substitute for professional legal advice from a qualified attorney licensed in Kansas. Laws can change, and individual situations vary significantly. Always consult with an experienced estate planning attorney to discuss your specific circumstances and to obtain advice tailored to your needs. No attorney-client relationship is formed by reading this article.