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Using Asset Protection Trusts to Shield Family Wealth
Explore how asset protection trusts may help safeguard wealth from legal risks and support multigenerational planning as part of a broader estate...
Learn how high-net-worth individuals can reduce gift taxes while supporting family through annual exclusions, trusts, and strategic wealth transfer planning.
How to Reduce Gift Taxes While Supporting Your Family
Supporting children, grandchildren, or other family members financially can be one of the most meaningful uses of your wealth. But for high-net-worth individuals, larger gifts can trigger federal gift tax considerations—and potentially affect your broader estate plan. Fortunately, there are structured ways to give that align with IRS rules and support your long-term legacy goals.
Whether you’re funding education, transferring business assets, or making annual gifts, a strategic approach can help you manage tax exposure and retain flexibility in how wealth is shared across generations.
Strategies for reducing gift tax exposure include:
- Leveraging the annual gift tax exclusion
- Paying education and medical costs directly
- Using irrevocable trusts for larger or longer-term gifts
- Gifting assets at lower valuations
- Structuring family loans and intra-family transfers
- Planning gift timing in coordination with market conditions and lifetime exemptions
- Integrating gift strategies with your broader estate and tax planning
How the Gift Tax System Works
The IRS defines a gift as any transfer of value where full compensation is not received in return. While many gifts are exempt from tax, others may count against your lifetime exemption—or require you to file a gift tax return.
As of 2025, individuals may gift up to $19,000 per recipient per year without triggering gift tax or utilizing any portion of their lifetime exemption. For married couples electing to split gifts, this amount effectively doubles to $38,000 per recipient.
Gifts exceeding these annual exclusion amounts may necessitate the filing of IRS Form 709 and will begin to reduce the individual's lifetime gift and estate tax exemption, which stands at $13.99 million per person in 2025.
The key is understanding when a gift is reportable—and when it’s not.
Annual Exclusion Gifting
The annual exclusion is one of the most accessible ways to reduce the size of your taxable estate over time. While the per-person limits may seem modest, gifting to multiple recipients—year after year—can gradually move substantial wealth out of your estate.
Common applications include:
- Contributing to a child or grandchild’s investment or custodial account
- Helping with a down payment, travel, or tuition
- Funding 529 plans (with special rules allowing five years’ worth of contributions upfront)
These gifts are generally not subject to gift tax and don’t require a return to be filed if structured correctly.
Education and Medical Gifting: Tax-Free if Paid Correctly
Certain gifts are exempt from gift tax, regardless of size, if you pay directly to the institution or provider. You can:
- Pay tuition directly to a qualified educational institution (not including room, board, or books)
- Pay medical bills or insurance premiums directly to the provider
- Cover long-term care or other eligible medical services for a family member
These exclusions are separate from the annual limit and can be used in tandem with other gifting strategies.
Using Trusts to Structure Larger Gifts
When you're making more substantial or long-term gifts, irrevocable trusts offer more structure and control—while also removing future appreciation from your estate.
Types of trusts that may be used:
- Spousal Lifetime Access Trusts (SLATs): Benefit your spouse while transferring assets out of your estate
- Dynasty Trusts: Preserve wealth across multiple generations
- Irrevocable Life Insurance Trusts (ILITs): Keep life insurance proceeds outside your taxable estate
- Intentionally Defective Grantor Trusts (IDGTs): Allow income tax benefits while removing gifted assets from your estate
These vehicles can support both tax goals and legacy intentions, but require thoughtful drafting and coordination with estate attorneys.
![What are your gifting goals, decision tree flowchart: "What are your gifting goals?" with branches for: • "Support spouse while reducing estate" → SLAT (Spousal Lifetime Access Trust) • "Preserve wealth across generations" → Dynasty Trust • "Keep life insurance proceeds outside estate" → ILIT (Irrevocable Life Insurance Trust) • "Transfer assets while maintaining income tax benefits" → IDGT (Intentionally Defective Grantor Trust) ]](https://www.epwealth.com/hs-fs/hubfs/What%20are%20your%20gifting%20goals.png?width=1400&height=600&name=What%20are%20your%20gifting%20goals.png)
Strategic Timing
Gifting at the right time can have a meaningful impact on how much value is removed from your estate. Examples include:
- Gifting early in the year to remove a full year’s worth of potential appreciation
- Gifting during market downturns when asset values are temporarily lower
Reviewing your gifting plan annually allows for timely adjustments that align with both markets and policy shifts.
Intra-Family Loans and Alternative Transfer Strategies
Not all wealth transfers need to be classified as gifts. Loans between family members—when properly documented—can allow for financial support while maintaining structure. Consider:
- Low-interest family loans using the Applicable Federal Rate (AFR)
- Forgivable loans that are partially “forgiven” annually under the gift tax exclusion
- Valuation discounts for minority interest transfers in closely held businesses or partnerships
Gifting Business Interests or Appreciating Assets
Transferring closely held business shares, real estate, or appreciating assets may offer tax advantages when done early. Depending on how and when the transfer is structured, it may offer benefits like:
- Transferring interests at a discount (due to lack of marketability and minority interest ownership discounting)
- Removing future appreciation from your estate
- Retaining management control while transitioning ownership gradually
This is particularly relevant for entrepreneurs or investors with concentrated holdings who are thinking ahead about succession or liquidity events.
Life Insurance and Gifting Strategies
Life insurance can play a valuable role in equalizing inheritances, creating liquidity to address estate taxes, or supporting longer-term family planning objectives.
For example, gifting premiums to an Irrevocable Life Insurance Trust (ILIT) allows the policy’s proceeds to be excluded from your taxable estate.
Annual exclusion gifts may be used to fund these policies, typically through the use of Crummey letters, without exceeding the applicable federal gift tax annual exclusion limits.
When used as part of a broader estate strategy, life insurance can facilitate wealth transfer outside of probate and estate tax exposure.
Coordinating with Your Broader Financial Plan
Gifting strategies can be most effective when they align with your larger estate, tax, and investment planning goals. This includes:
- Coordinating gifts with your long-term wealth transfer objectives.
- Staying current on changes to exemption limits and valuation rules.
- Considering how today’s support for family members fits into your future financial flexibility.
When approached as part of a comprehensive plan, gifting can be tailored to reflect both near-term intentions and multigenerational goals.
How EP Wealth Supports Strategic Gifting
At EP Wealth, we support clients in developing gifting strategies that reflect their financial goals, family dynamics, and long-term plans. That includes:
- Evaluating annual and lifetime giving strategies
- Collaborating with estate attorneys and tax professionals
- Reviewing how gifts fit into your overall estate planning strategy
- Helping structure trusts and transfers to support multi-generational wealth
Whether you're making gifts now or planning for the future, our team can help guide your next steps. Contact an advisor at EP Wealth to get started.
DISCLOSURES
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
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- The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
- All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
- An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
- Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
- Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
