.png?width=1080&height=1080&name=LinkedIn%20with%20Light%20Blue%20Background%20(1).png)
.png?width=1080&height=1080&name=Facebook%20with%20Light%20Blue%20Background%20(1).png)
.png?width=1080&height=1080&name=Instagram%20(1).png)
How to Potentially Minimize Estate Taxes with Advanced Planning Strategies
Explore advanced strategies to help manage estate taxes when transferring wealth. Learn how trusts, gifting, and business structures may impact...
Explore tax-efficient gifting strategies—from annual exclusions to trusts—to help manage estate tax exposure while transferring wealth to loved ones or charities.
Tax-Efficient Gifting: Strategies to Reduce Your Estate’s Tax Burden
Wealth transfer isn’t just about the amount you pass down—it’s about making thoughtful choices that shape your legacy. For individuals with substantial estates, taxes can take a significant portion of what was intended for heirs or charitable causes. Strategic gifting can help manage estate tax exposure while allowing assets to be transferred on your terms.
From annual exclusions to advanced trusts, there are different ways to approach gifting. Understanding the rules, timing, and structure of these gifts can be an important part of estate planning. This guide explores several gifting strategies and how they may fit into a long-term financial plan.
Gift Tax Exclusions and Exemptions
Annual Gifting Strategies
Some individuals choose to make smaller gifts over time rather than transferring wealth in large sums. The annual gift tax exclusion allows gifts up to a certain amount each year without incurring gift taxes.
- In 2025, the exclusion amount is $19,000 per recipient.
- There is no limit to the number of people who can receive gifts under this rule.
- Payments for tuition or medical expenses—if made directly to the institution—are also exempt.
For those looking to support children, grandchildren, or other beneficiaries, structured annual gifting may potentially help reduce the taxable estate over time while gradually transferring wealth.
Gift Splitting Between Spouses
Married couples can take advantage of gift splitting, which allows them to combine their annual exclusions to make larger tax-free gifts.
- In 2025, spouses can gift up to $38,000 per recipient without using their lifetime exemption.
- This applies even if only one spouse is funding the gift, as long as both agree to split it. A gift tax return may need to be filed.
Strategic Timing of Gifts
Gifting earlier in life can allow assets to appreciate outside the estate, potentially reducing future estate tax exposure. Some individuals choose to:
Lifetime Gift Tax Exemption
Larger gifts beyond the annual exclusion may fall under the lifetime gift tax exemption, which is $13.99 million per individual in 2025. Any gifts exceeding this exemption may be subject to federal gift taxes.
Some individuals use this exemption to transfer appreciating assets, such as:
- Stocks or real estate, allowing future growth to occur outside their estate.
- Family business interests, which can be structured through partnerships or trusts.
Coordinating annual exclusions with lifetime exemption strategies may allow for a more structured approach to wealth transfer. Working with financial and legal professionals can help assess how these exemptions align with broader estate plans.
Advanced Gifting Techniques
If you own assets greater in value than the lifetime exemption amount that you plan to pass to heirs, you may be subject to transfer taxes, including the gift and estate tax (40% in 2025) and the generation-skipping transfer tax (40% in 2025). For those with significant assets, certain legal structures can offer additional flexibility in gifting strategies. These techniques should only be implemented in coordination with financial and legal professional assistance.
.png?width=1000&height=150&name=advanced-gifting-techniques%20(1).png)
Grantor Retained Annuity Trusts (GRAT)
A GRAT allows individuals to transfer appreciating assets while receiving back an annuity stream of income for a set period. If structured properly, any remaining value may pass to beneficiaries with reduced tax consequences.
Family Limited Partnerships (FLP)
FLPs may allow individuals to transfer business or real estate interests while retaining control over management. This approach can provide flexibility for estate planning while offering potential valuation discounts for estate tax purposes.
Qualified Personal Residence Trusts (QPRT)
A QPRT allows a primary or vacation home to be transferred at a reduced taxable value while still allowing the donor to live in the property for a specified period.
Intentionally Defective Grantor Trusts (IDGT)
An IDGT can separate ownership for estate tax purposes while keeping income tax obligations with the grantor. This structure is often used for appreciating assets or business succession planning.
Charitable Gifting
For those exploring philanthropy as part of their legacy, charitable giving strategies can be integrated into estate plans. Options include:
- Donor-Advised Funds (DAFs): Individuals can contribute assets to a fund, receive an immediate tax deduction, and recommend grants to charity over time.
- Charitable Remainder Trusts (CRTs): These trusts provide income to the donor or other beneficiaries for a period before distributing the remainder to charity.
- Charitable Lead Trusts (CLTs): Unlike CRTs, CLTs provide payments to a charity first for a period, with the remainder passing to heirs.
- Qualified Charitable Distributions (QCDs) from IRAs: Those over age 70½ can make tax-free charitable donations directly from IRAs, which may help manage required minimum distributions (RMDs).
Asset-Specific Gifting Strategies
The type of asset being gifted can influence tax implications and long-term outcomes. Some considerations include:
Special Considerations
Basis Step-Up Implications
Inherited assets typically receive a step-up in basis, meaning their value is adjusted to fair market value at the time of the original owner’s death, which may reduce capital gains taxes if the heirs decide to sell the asset in the future. However, when assets are gifted during the donor’s lifetime, the recipient generally inherits the donor’s original cost basis, which could result in higher capital gains taxes upon sale.
Generation-Skipping Transfer Tax (GSTT)
Transfers to grandchildren or other beneficiaries at least 37.5 years younger than the donor may be subject to the generation-skipping transfer tax (GSTT) in addition to federal estate and gift taxes. However, the GST exemption, currently aligned with the federal estate tax exemption, allows a certain amount to pass without triggering the tax. Trusts and other planning tools can help structure gifts to future generations while managing potential GSTT exposure.
State Gift Tax Considerations
While federal gift tax rules apply nationwide, some states impose their own gift or estate taxes, which can impact wealth transfer strategies. Some states tax inheritances rather than gifts, while others have lower exemption thresholds than the federal level.
Gift Documentation Requirements
Gifts exceeding the annual exclusion amount must be reported to the IRS using Form 709, which tracks lifetime exemption usage but does not necessarily result in taxes being paid. Proper documentation, including appraisals for real estate or business interests, can help establish fair market value.
Common Pitfalls and Planning Tips
- Retained control over gifted assets – When gifting, the donor must fully relinquish ownership; otherwise, the IRS may still consider the asset part of the taxable estate. This can be an issue if the donor continues to manage a business interest, live in a gifted home without paying fair market rent, or retain decision-making authority over trust assets.
- Establishing clear legal structures and properly documenting the transfer can potentially help avoid these complications.
- Valuation challenges – Certain assets, such as real estate, closely held businesses, or valuable collectibles, require professional appraisals to determine their fair market value for gift tax purposes. If an asset is undervalued, it could trigger IRS scrutiny, while an overvaluation might lead to unnecessary exemption usage or tax liability.
- Timing considerations – Market conditions and potential tax law changes can influence when it makes sense to gift assets. Gifting early may allow appreciation to occur outside the donor’s estate, potentially reducing estate tax exposure. Waiting too long could result in a higher asset valuation and increased tax liability.
Because gifting strategies can have long-term tax and financial implications, working with experienced professionals can provide valuable insights. EP Wealth’s tax planning services can help individuals assess their options and develop a personalized approach that fits their overall financial plan.
Contact us today to learn more.
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.
- Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
- The need for an advisor, tax planning professional 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.
- 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.
