Learn how strategic trust planning and smart wealth transfer techniques can help families protect assets, lower estate taxes, and pass on more to heirs.
Estate taxes can significantly reduce the amount of wealth transferred to future generations, especially for individuals and families with sizable estates. Without careful planning, a portion of your net worth could be subject to federal estate taxes, and in some cases, state-level taxes as well. Trusts and other advanced planning techniques are frequently used to move future appreciation out of the taxable estate and create liquidity for tax obligations.
Some of the more commonly explored strategies include:
Each of these tools has distinct tax rules, administrative requirements, and suitability considerations. They may not be appropriate for all individuals or families. It’s important to consult with a financial advisor, estate attorney, and tax professional to evaluate which strategies align with your goals, asset profile, and overall estate plan.
The federal estate and gift tax exemption is $15 million per individual in 2026. This means each spouse can make up to $15 million of lifetime gifts (or transfers at death) free of estate and gift tax, for a combined total of $30 million if both fully use their exemptions. If one spouse dies without using their full exemption, the unused amount can be added to the surviving spouse’s own exemption through portability, effectively increasing the surviving spouse’s threshold above $15 million. To secure this benefit, the executor of the deceased spouse’s estate must file a federal estate tax return (Form 706), even if no estate tax is due.
This historically high threshold may not remain in place indefinitely. For high-net-worth families, this means that making large lifetime gifts today could reduce the value of assets subject to estate tax in the future.
Importantly, the IRS has clarified that gifts made under today’s higher exemption amounts will not be "clawed back" into the estate if the exemption later decreases. This creates an opportunity to make significant transfers now without concern that future law changes will retroactively negate their effect.
A SLAT is an irrevocable trust funded by one spouse for the benefit of the other (and possibly children or grandchildren). Once assets are transferred into the trust, any future growth typically occurs outside the original grantor's estate. Because the grantor’s spouse is a beneficiary, there may still be indirect access to the assets if needed.
However, the trust must be carefully drafted to avoid retained interest issues that could cause estate inclusion under Internal Revenue Code sections 2036 or 2038. Using grantor trust provisions allows the grantor to continue paying income taxes on the trust assets, which can further support estate reduction without triggering additional gifts.
GRATs are often used to transfer assets with high growth potential. The grantor contributes assets to the trust and retains the right to receive fixed annuity payments for a defined term. At the end of the term, any remaining assets - along with any appreciation beyond the IRS-prescribed interest rate (§7520 rate) - pass to the named beneficiaries, often with little or no gift tax impact if structured as a “zeroed-out” GRAT.
GRATs are particularly effective when interest rates are low or when there is a strong expectation of asset growth. However, the grantor must survive the annuity term for the transfer to fully escape estate inclusion.
An IDGT is an irrevocable trust structured so that the grantor is treated as the owner for income tax purposes, but not for estate tax purposes. This allows the grantor to sell appreciating assets to the trust in exchange for a promissory note, effectively freezing the value of the estate at the note’s value. Future growth then accrues in the trust for the benefit of heirs.
The grantor’s ongoing payment of income taxes on trust income allows the trust to grow without tax drag, which may enhance the long-term effectiveness of this strategy. Drafting must be approached with caution, especially around tax-reimbursement clauses and the IRS’s evolving position on trust modifications.
Life insurance proceeds can become subject to estate tax if the policyholder retains ownership or certain rights. An ILIT helps remove the death benefit from the taxable estate by owning the policy through the trust.
Funding the ILIT can be structured to qualify for the annual gift tax exclusion by using “Crummey powers,” which provide temporary withdrawal rights to beneficiaries. It's important that the trust and the policy are structured correctly from the outset, as retaining any incidents of ownership can lead to estate inclusion under IRC §2042.
A QPRT allows a homeowner to transfer a personal residence into a trust while retaining the right to live in the home for a set number of years. This structure can reduce the taxable value of the gift due to the retained interest.
If the grantor outlives the trust term, the residence, along with any appreciation, passes to beneficiaries outside of the taxable estate. If the grantor does not survive the term, the home is brought back into the estate, reducing the overall effectiveness of the strategy.
High-net-worth individuals often have significant wealth tied up in closely held businesses, investment entities, or real estate. These types of assets can complicate estate planning due to liquidity constraints and valuation issues.
By transferring assets into a family-controlled entity and gifting minority interests to heirs, families may explore valuation discounts based on lack of marketability or control. These structures also provide a framework for centralized asset management and succession.
However, courts and the IRS closely scrutinize these arrangements. The entity must have a legitimate non-tax purpose, follow corporate formalities, and avoid structures that suggest the original owner retained too much control, which could trigger inclusion under IRC §2036.
If estate taxes are owed on illiquid assets like a business, IRC §6166 may allow the estate to defer payments over a period of up to 14 years. This provision can provide time to address liquidity needs without immediately selling the business.
To qualify, the business must represent a significant portion of the estate and meet specific operational requirements. Proper planning, including eligibility review and documentation, is critical for families who may want to pursue this option.
Charitable trusts can serve both philanthropic and estate planning goals, providing potential income or estate tax deductions while passing wealth to heirs or supporting charitable causes.
These trusts distribute income to a charity for a set term, after which the remaining assets pass to heirs. The structure can reduce the taxable value of the gift to beneficiaries and may help freeze asset values in the grantor’s estate.
Proper structuring is required to meet IRS regulations under Sections 170, 2055, and 2522. CLATs may be particularly effective in low-interest-rate environments where asset growth is expected to outpace the IRS’s valuation assumptions.
CRATs and CRUTs allow the grantor or other beneficiaries to receive an income stream for life or a term of years, after which the remainder passes to charity. These trusts can be useful for individuals holding highly appreciated assets, as they allow for tax-deferred diversification within the trust and may generate an income tax deduction.
These trusts are governed by IRC §664 and have strict requirements regarding annual payouts and actuarial calculations.
Advanced estate planning involves careful coordination among legal, tax, and financial professionals. While an attorney typically drafts the necessary trust documents, an advisor plays an important role in evaluating which strategies align with a client’s broader plan.
Advisors can assist in:
EP Wealth advisors work closely with clients and their legal and tax professionals to support the integration of estate tax strategies into a comprehensive wealth plan. Contact an advisor near you to start the conversation.
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