When considering estate planning, it is critical to evaluate the tax implications of the decisions you make. Building awareness about how federal laws could affect you and your heirs ensures you make solid financial decisions that protect your legacy and maximize the value of your estate.
Mississippi is a tax-friendly state for many residents. In the big picture, it is a great state to live in if you are a retiree or planning to protect the financial future of your loved ones through an estate plan. However, it’s essential to understand what federal taxes may apply and what changes could be made to your financial and estate planning to further protect your assets from being taxed.
Estate Tax
While the state of Mississippi doesn’t levy estate taxes, the IRS has an established estate tax threshold that increases annually. This tax, sometimes called the death tax, is paid on the deceased person’s assets. Depending on the estate’s value, this death tax can run between 18% to 40%. It’s important to note that estate tax is based on an asset’s current fair market value.
When you die, your assets get transferred to the estate and could be subject to estate tax. This would include assets that include cash, securities, and other property.
The federal estate taxes have an exemption limit that allows many estates to avoid paying the estate tax entirely. This limit is $15 million in 2026. Any amount below the established yearly limit will not be subject to taxes.
This further benefits married couples as a spouse’s inherited assets will generally be exempt from federal estate taxes. The IRS has an unlimited marital deduction for assets going to a spouse. Additionally, a married couple can combine their individual limits to shield up to $30 million from federal estate taxes. Once other designated heirs and beneficiaries are included in the estate plan, they may be affected.
Inheritance Tax
Inheritance tax is applied to assets that have already been distributed to heirs, who are then responsible for paying the inheritance tax on the assets they inherit.
As with estate tax, the state of Mississippi has no inheritance tax. However, when beneficiaries receive an inheritance through an out-of-state will or trust, the tax may still apply if it is left by someone who lives in a state with an inheritance tax.
Gift Tax Law
For those making above the estate tax threshold, gifting their money and assets is a strategy often used to lower the value of their total estate.
However, in most cases, limits are placed on the amount you can gift annually before it is taxed with a federal gift tax. In 2026, the limit is $19,000. This is doubled when gifted from 2 spouses. This long-term strategy may be combined with others to avoid federal taxes.
Gifting Assets to Children and Grandchildren
The IRS allows you to give annual gifts to children and grandchildren and avoid the gift tax as long as it doesn’t exceed the federal gift tax limit. If you do this over several years without exceeding the limit, you can significantly reduce your potential tax liability at death.
If you are gifting to minors, discuss the gifting strategies available with a tax expert. They will guide you on how to protect minor children, and potentially avoid tax burdens through the Uniform Transfers to Minors Act and Uniform Gifts to Minors Act. These two acts allow you to transfer assets, including cash, property, or other valuables, to a custodial account, which the donor or another appointed custodian manages. It is a common misconception that the minor pays the gift tax if you exceed the annual limit.
Under federal law, the donor is responsible for any gift tax reporting, which is then applied against their lifetime estate tax exemption. However, the investment income (such as interest, dividends, or capital gains) generated by the assets inside the account is taxed to the minor, which can provide income tax advantages depending on the child’s tax bracket.
Skipping a Generation with Gifting
The federal government has safeguards in place for gifts that skip a generation, meaning they go directly to grandchildren rather than to your children. While these gifts are subject to Generation-Skipping Transfer (GST) tax rules, gifts exceeding the annual $19,000 exclusion do not immediately trigger a 40% tax bill.
Instead, under IRS rules, your lifetime GST tax exemption (which is $15 million in 2026) is automatically applied to shield the gift from immediate taxation. The government designed the GST tax to prevent ultra-wealthy estates from intentionally skipping a generation to avoid paying federal estate taxes, meaning the actual 40% GST tax is only owed if a donor has completely exhausted their multi-million dollar lifetime exemption limit.
While creating or updating your estate plan, it’s essential to recognize that tax laws are often subject to change depending on the political climate. It’s necessary to be aware of these issues and be prepared to make modifications accordingly by working with an estate tax expert.
Other Strategies to Reduce Your Tax Burden
Every situation is unique, and it’s important to collaborate with an estate tax expert to help guide you through options that make sense for your circumstances and goals. Other opportunities to look into include the following:
- Family Limited Partnerships (FLPs) or Family LLCs to protect business interests, consolidate family investments, and safely transfer wealth to the next generation while retaining management control.
- Charitable trusts to benefit important causes, receive immediate income tax deductions, and avoid paying capital gains taxes on appreciated donations.
- Various Irrevocable Trusts to help shelter your wealth, protect assets from creditors, and legally remove property from your taxable estate.
Frequently Asked Questions
Does Mississippi have its own state estate tax or inheritance tax?
No. Mississippi does not impose a state-level estate tax or an inheritance tax. However, larger Mississippi estates may still be subject to federal estate taxes if the estate’s total fair market value exceeds federal exemption thresholds.
What is spousal portability in estate planning?
Spousal portability allows a surviving spouse to claim any unused portion of their deceased partner’s federal estate tax exemption. When properly elected with the IRS, a married couple can combine their limits to shield up to $30 million from federal estate taxes in 2026.
Could a Mississippi resident ever be forced to pay an inheritance tax?
Yes, but only if they inherit assets from an out-of-state resident. While Mississippi has no inheritance tax, there are five states that currently collect an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If a Mississippi resident inherits property subject to the laws of one of those states, they may still owe that state’s inheritance tax.
Get Expert Legal and Tax Advice to Maximize Your Estate
Tax laws are subject to change depending on the political climate. Depending on current tax laws, you may want or need to adjust your tax planning and revisit your estate strategy as your family’s circumstances (or federal and state regulations) evolve.
To speak with a trusted Mississippi legal team to create and protect your estate plan, reach out to the Lancaster Law Firm or explore our estate planning services to schedule a consultation today.