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Reduce Your Estate's Tax Burden with Gifting
Explore tax-efficient gifting strategies—from annual exclusions to trusts—to help manage estate tax exposure while transferring wealth to loved ones...
Explore advanced strategies to help manage estate taxes when transferring wealth. Learn how trusts, gifting, and business structures may impact estate plans.
How to Potentially Minimize Estate Taxes with Advanced Planning Strategies
Estate taxes can take a significant toll when it comes to wealth transfer planning, especially for high-net-worth individuals. Advanced strategies such as irrevocable trusts, lifetime gifting, and structured ownership of family businesses afford you the opportunity to plan for your estate, with tax considerations in mind. By exploring options in advance, individuals may have more flexibility in how their wealth is distributed. Here are some key strategies for navigating tax liabilities.
Gifting Strategies to Reduce Taxable Estate
One of the simplest ways to reduce an estate’s taxable value is through lifetime gifting. By strategically transferring assets during their life, individuals can potentially decrease the size of their taxable estates, thus increasing the amount that can pass to heirs.
Gifting strategies include:
- Annual Gift Tax Exclusion – Individuals can gift up to the annual exclusion limit (currently $19,000 per person, per donee) without triggering gift tax. This allows for gradual wealth transfer over time.
- Estate and Gift Exemption – Individuals also have a unified estate and gift tax exemption that allows them to transfer larger amounts during life and at death, which can provide for larger tax-free transfers. This amount is subject to legislative changes, making periodic review of an estate plan important.
- Direct Payments for Education & Medical Expenses – Payments made directly to educational institutions or medical providers on behalf of someone else are not subject to gift tax limits.
Utilizing Irrevocable Trusts for Estate Tax Planning
Irrevocable trusts can be valuable tools in estate planning, providing structure for wealth transfer while potentially reducing estate tax liability. The right trust structure will depend on individual goals and circumstances.
Irrevocable Life Insurance Trusts (ILITs)
Life insurance proceeds can add substantial value to an estate. An ILIT is designed to remove life insurance proceeds from a taxable estate while still providing beneficiaries with financial support.
Grantor Retained Annuity Trusts (GRATs)
GRATs allow individuals to transfer assets while retaining annuity payments for a term of years. If structured appropriately, any remaining value in the trust after the annuity payments can pass to heirs without being included in the grantor’s taxable estate.
Intentionally Defective Grantor Trusts (IDGTs)
An IDGT is a specialized type of trust used to transfer appreciating assets. The grantor pays income tax on the trust assets, allowing the trust to grow without tax burdens on beneficiaries. IDGTs are often used in conjunction with business succession planning or high-growth investments.
Dynasty Trusts for Multi-Generational Wealth Transfer
Dynasty trusts are designed to pass wealth across multiple generations while limiting exposure to estate taxes at each generational transfer. Depending on state law, dynasty trusts can potentially last for centuries, providing ongoing asset protection and governance.
Family Limited Partnerships (FLPs) & Limited Liability Companies (LLCs)
For individuals with significant assets, including family businesses or real estate holdings, structuring ownership through an FLP or LLC may offer estate planning benefits.
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Charitable Giving Strategies
Individuals can structure charitable contributions in a way that not only supports their philanthropic goals but also potentially benefits their estate plan.
Spousal Estate Tax Strategies
Spouses can avail themselves of favorable provisions in the tax law – which apply only to married couples – that can better manage wealth transfer planning.
Unlimited Marital Deduction
Assets left to a surviving spouse are generally exempt from estate taxes, regardless of value. This allows wealth to pass between spouses tax-free, though estate taxes may still apply when the second spouse passes away.
Portability of Estate Tax Exemptions
If, upon the death of the first spouse to die, an estate tax return is timely filed to elect “portability," a surviving spouse can add any unused portion of their deceased spouse’s federal estate tax exemption to the surviving spouse’s own exemption amount, which can be used during the surviving spouse’s remaining life or at his or her death. This can allow the married couple to more effectively utilize the exemption amount of each spouse, potentially reducing the overall taxable estate upon the death of the second spouse to die.
Keeping Up with Changing Tax Laws
Estate tax laws and exemption limits are subject to change. Strategies that are effective today may need adjustments in the future. Regularly reviewing an estate plan with tax and estate planning professionals can keep it aligned with current regulations.
Explore EP Wealth’s estate planning services for help in determining which strategies are right for both your short- and long-term goals.
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.
- The need for an estate 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.
- 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.
- 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.
