The Virginia estate tax is a crucial consideration for anyone with significant assets in the Commonwealth, yet many residents overlook it until it’s too late. Unlike the federal estate tax, which only affects the wealthiest Americans, Virginia’s tax rules can impact middle-class families and business owners more directly. Understanding how Virginia handles estate taxation—and what you can do to minimize your family’s burden—is one of the smartest financial moves you can make.
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Virginia Estate Tax Basics
Here’s the good news: Virginia does not currently impose a state-level estate tax or inheritance tax. This puts Virginia in a favorable position compared to states like California and Illinois, which do tax inheritances or estates. However, this doesn’t mean Virginia residents are entirely off the hook—the federal estate tax still applies, and it can be substantial.
Many Virginians make the mistake of assuming “no state tax” means they don’t need an estate plan. That’s a dangerous assumption. Even without state-level taxation, federal rules, probate costs, and family disputes can erode an estate’s value significantly. The absence of a Virginia estate tax is actually an opportunity to plan more strategically, because you’re not fighting a two-front battle against state and federal taxes simultaneously.
Federal vs. State Rules
The federal estate tax is the real player in the game for Virginia residents. As of 2024, the federal exemption sits at approximately $13.61 million per individual (or $27.22 million for married couples filing jointly). Sounds high? It is—but it’s also temporary. This exemption is scheduled to sunset in 2026, dropping back to roughly $7 million per person unless Congress acts.
What this means in practical terms: if your estate exceeds the exemption threshold, the IRS taxes the overage at a rate of 40%. That’s not a typo. Forty percent. On top of that, you may face state inheritance taxes if you have property or beneficiaries in other states. Some Virginia business owners and retirees own real estate or investments across state lines, which complicates matters further.
Since Virginia itself doesn’t have an estate tax, you won’t owe Virginia state taxes on your estate. But you absolutely could owe federal taxes, and that’s where smart planning becomes essential. Understanding the difference between federal and state rules helps you avoid costly oversights.
Exemptions and Thresholds
The federal exemption is your first line of defense. For 2024, each individual can pass $13.61 million to heirs free of federal estate tax. Married couples can combine their exemptions through “portability,” effectively doubling that amount to $27.22 million. However, portability requires proper planning and filing—it doesn’t happen automatically.
Here’s where many people stumble: they assume their estate is too small to worry about taxes. But exemptions change. If you had $10 million in assets in 2023, you were fine. In 2026, if the exemption drops and you still have $10 million, suddenly you’re $3 million over the threshold. That’s $1.2 million in federal taxes your heirs didn’t expect to owe.
Additionally, certain assets don’t get a “step-up” in basis the way you might think. Retirement accounts, for instance, pass to beneficiaries with income tax liability attached. Your $2 million IRA might look like $2 million to your heirs, but they’ll owe income taxes as they withdraw it. That’s a hidden tax many families don’t account for.
Taxable Estate Calculation
Your taxable estate includes far more than just your bank accounts and investment portfolios. It includes your home, vehicles, life insurance proceeds, retirement accounts, business interests, and even digital assets. For many Virginia residents, life insurance alone can push them over the exemption threshold without them realizing it.
Let’s walk through a realistic example: You own a home worth $600,000, have $800,000 in retirement accounts, $500,000 in brokerage accounts, a $1 million life insurance policy, and a business valued at $2 million. That’s $4.9 million—well below the federal exemption. But if your spouse has similar assets, you’re looking at nearly $10 million combined. Add five years of growth and inflation, and you could easily exceed the exemption by 2026.
The calculation also includes gifts you’ve made during your lifetime. If you’ve given away more than $18,000 per person per year (the 2024 annual exclusion), those gifts eat into your exemption. Again, most people don’t track this carefully, leading to surprises later.
Common Planning Mistakes
The biggest mistake Virginia residents make is procrastination. They tell themselves they’ll handle estate planning “next year” or “when things settle down.” Meanwhile, their assets grow, and the window for tax-efficient planning closes. Life insurance, trusts, and gifting strategies all work better when implemented early.
Another frequent error: failing to update beneficiary designations. Your will might say one thing, but beneficiary designations on retirement accounts and insurance policies override your will. If you named your ex-spouse as beneficiary on your $500,000 life insurance policy and never updated it after the divorce, that money goes directly to them—regardless of what your will says.
A third mistake is not using trusts effectively. Many Virginia residents create simple wills, thinking that’s sufficient. But wills go through probate, which is public, expensive, and time-consuming. A revocable living trust, by contrast, passes assets to beneficiaries privately and quickly. It also provides protection if you become incapacitated and can’t manage your own affairs.
Finally, business owners often overlook succession planning. If you own a business and something happens to you, what happens to the business? Who takes over? Are there buy-sell agreements in place? Without clear planning, your family might be forced to sell the business at a loss to cover estate taxes and debts.
Trusts and Strategic Planning
A revocable living trust is the cornerstone of most Virginia estate plans. You create it, fund it with your assets, and name yourself as trustee during your lifetime. When you pass away, a successor trustee takes over and distributes assets according to your instructions. It’s private, it avoids probate, and it can include detailed instructions for how you want your money managed and distributed.
For larger estates, an irrevocable life insurance trust (ILIT) can be a game-changer. You transfer ownership of your life insurance policy to the trust, removing the death benefit from your taxable estate. This is particularly valuable if you have a large policy that would otherwise push you over the federal exemption.
Qualified personal residence trusts (QPRTs) allow you to transfer your home to a trust while retaining the right to live in it for a specified period. After that period, the home passes to your beneficiaries at a reduced tax value. It’s complex, but for Virginia homeowners with valuable properties, it can save substantial taxes.
Charitable remainder trusts (CRTs) serve a dual purpose: you get income from the trust during your lifetime, and the remainder goes to your favorite charity. You also get a charitable deduction, which reduces your taxable estate. If you’re charitably inclined, this strategy can be incredibly powerful.
Business Owner Considerations
Virginia has a thriving entrepreneurial community, and business owners face unique estate planning challenges. If you own a business valued at $2 million or more, your estate could easily exceed federal exemptions once you factor in personal assets.
One strategy is a buy-sell agreement, where you agree with your business partners (or with your company itself) that your interest will be purchased at a predetermined price upon your death. This ensures your family gets paid for your business interest, provides liquidity to pay estate taxes, and prevents disputes among surviving partners.
Another approach is to gradually transfer business interests to the next generation through annual gifts. If you own a closely held business, you might discount the value of gifted interests (because a minority stake is worth less than a controlling stake), allowing you to transfer more value with fewer gift tax consequences.
For some business owners, an S-corp election or LLC structure can provide tax advantages. These entities allow you to pass business income and growth to heirs more tax-efficiently than a traditional C-corporation would.
Working with Professionals
Estate planning isn’t a DIY project, no matter how tempting online legal services might seem. A qualified Virginia estate planning attorney can structure your plan to take advantage of every available tax break and ensure your documents are properly executed. Virginia has specific requirements for wills, trusts, and powers of attorney, and mistakes can invalidate your entire plan.
A certified financial planner (CFP) or CPA with estate planning experience can help you calculate your likely tax exposure and model different scenarios. They can show you, concretely, what happens if the federal exemption drops in 2026, or what your estate will look like if your business doubles in value.
Your professional team should also include your insurance agent, who can help you structure life insurance to minimize taxes, and possibly a business valuation expert if you own a company. These professionals should communicate with each other—your attorney needs to know what your financial planner is recommending, and vice versa.
Don’t cheap out on this. A $3,000 investment in comprehensive estate planning can save your heirs $300,000 or more in taxes and probate costs. That’s a 100-to-1 return on your investment.
Frequently Asked Questions
Does Virginia have an estate tax?
No, Virginia does not currently impose a state-level estate tax or inheritance tax. However, the federal estate tax applies to Virginia residents with estates exceeding the federal exemption ($13.61 million in 2024).
What’s the difference between an estate tax and an inheritance tax?
An estate tax is paid by the estate itself before assets are distributed to heirs. An inheritance tax is paid by the heirs when they receive their inheritance. Virginia has neither, but some states have one or both.
Do I need an estate plan if my estate is under the federal exemption?
Yes. Even if you don’t owe federal estate taxes, an estate plan protects your family by avoiding probate, clarifying your wishes, and designating guardians for minor children. It also provides instructions for managing your affairs if you become incapacitated.
What happens if I die without a will in Virginia?
Your estate goes through intestate succession, meaning Virginia law dictates how your assets are distributed. Your spouse and children might receive less than you would have wanted, and the process is slower and more expensive than it needs to be.
Can I avoid estate taxes by gifting assets during my lifetime?
Partially. You can gift up to $18,000 per person per year (2024) without using your exemption. Larger gifts use your exemption, reducing what you can pass tax-free at death. Strategic gifting can work, but it requires careful planning.
What’s the step-up in basis, and how does it help my heirs?
When you die, your heirs receive a “step-up” in the cost basis of most assets to their fair market value at your death. This means if you bought stock for $10,000 and it’s worth $100,000 when you die, your heirs inherit it at $100,000 basis. If they sell immediately, they owe no capital gains tax. This is a massive benefit—don’t waste it by holding onto appreciated assets unnecessarily.
Should I create a trust or a will?
Ideally, both. A will covers assets not in your trust and designates guardians for minor children. A trust avoids probate and provides privacy. A comprehensive plan typically includes a revocable living trust as the main vehicle, with a pour-over will to catch any assets not transferred to the trust.
How often should I review my estate plan?
At least every three to five years, or whenever major life changes occur (marriage, divorce, birth of children, significant changes in asset value, moves to another state). Tax law changes frequently, and your plan should evolve accordingly.
Final Thoughts
Virginia’s lack of a state estate tax is a genuine advantage, but it shouldn’t lull you into complacency. The federal estate tax, combined with probate costs and potential family conflicts, can still devastate an unprepared estate. The time to act is now, while you’re healthy and have the mental clarity to make thoughtful decisions.
Start by calculating your likely taxable estate, considering not just what you have today but what you might have in five or ten years. Meet with an estate planning attorney and a financial advisor who understand Virginia law and your personal situation. Implement a plan that minimizes taxes, avoids probate, and reflects your values.
Your family will thank you. And honestly, you’ll sleep better knowing your affairs are in order.
