Estate Planning Tool Kit: How to Adapt to Tax Policy Changes

Use the annual exclusion to reduce your taxable estate by making annual gifts. Give up to $19,000 per person each year without tax. Married couples can give $38,000.

Pay directly for someone’s education or medical expenses. These payments do not count against the annual exclusion or lifetime exemption and do not trigger gift tax consequences.

For qualifying taxpayers, donate up to $110,000 (indexed for inflation) per year from an IRA to charity without paying income tax on it.

Property value growth can considerably increase net worth over time, which may lead to increased estate taxes if not adequately addressed in an estate plan. Transfer assets expected to grow in value sooner using gifts and sale techniques to help reduce your taxable estate.

These types of entities allow you to pool assets with family members and create different classes of ownership interests. Use these to gift or sell interests in family-held assets at a discount, potentially transferring more wealth.

Consider your cash needs and beneficiaries’ readiness to manage wealth. Trusts can help protect and guide them.

Be ready for potential changes in tax laws and adjust your plans as needed.

Take advantage of the $13.99 million per person lifetime exemption that exists for 2025 and the additional $1 million available in 2026. For an estate of this size, it’s not necessary to wait for the increase to take action, since acting earlier can get future growth out of an estate for appreciating assets.

A lifetime exemption gift can be given to children, grandchildren, friends, or trusts like irrevocable life insurance trusts (ILITs), intentionally defective irrevocable grantor trusts (IDGTS), and generation-skipping trusts (GSTs). These trusts help keep assets protected from future estate taxes.

However, once the assets are transferred to the trust, the couple cannot access the principal or income, so they need enough remaining resources to support their lifestyle independently.

A SLAT is an irrevocable trust that allows a spouse to access the trust’s income and principal while keeping assets out of the taxable estate. It’s a good tool for reducing estate taxes and enabling a spouse’s financial security. However, if the beneficiary-spouse dies or the couple divorces, the assets remain in the trust and generally cannot benefit the donor-spouse.

SLATs can be very effective but require careful planning and legal guidance to avoid IRS reciprocal gift rules and help the trust operate as intended.

Making taxable gifts allows taxpayers to decrease the size of their taxable estate and secure the current exemption amount, regardless of potential future reductions. Any future appreciation of these gifted assets will be excluded from the estate and won't incur estate tax at death.

Choose between grantor trusts (where you pay the income tax) and non-grantor trusts (treated as a separate entity for income tax purposes).

Sell assets to an irrevocable grantor trust in exchange for a promissory note. This transfers appreciation potential to beneficiaries. The benefit of a grantor trust is a sale to this type of trust is not a taxable transaction.

Also, the grantor is taxed on the income generated within a grantor trust, which further reduces the grantor’s estate and benefits the trust beneficiaries. These trusts can be structured specifically according to the grantor’s goals and objectives. An example of this type of trust would be an intentionally “defective” grantor trust, where the defect is desired.

Mix gifting and selling assets to a trust to utilize the exemption and remove appreciating assets without triggering gift tax liability.

A grantor retained annuity trust, or GRAT, is especially useful if you have lots of publicly traded stock or assets likely to appreciate quickly.

With a GRAT, you get an annuity from the trust for at least two years. The annuity amount is set so that, using the IRS's assumed return rate, you get back all the property value you put in by the end of the term.

If the assets grow faster than that rate, the extra money goes to your beneficiaries estate and gift tax-free. But if the assets don’t perform well, they come back to you. In a lower interest rate environment, a GRAT becomes more attractive, as the present value of the retained annuity has a higher value — making the gift of the remainder less.

A fundamental purpose of an irrevocable life insurance trust (ILIT) is to keep life insurance money out of the insured person's taxable estate. Once you create the trust and move the life insurance policy into it, you can't change or undo the terms of the trust — which makes sure the insurance money is used as you wish.

One advantage of an ILIT is the life insurance payout isn’t subject to estate tax; the yearly premiums for the policy are paid from cash given to the trust annually. Even if the trust makes money, the grantor still pays the income taxes, but the payment of taxes associated with income in the trust doesn't count as a gift.

Charitable gifts are effective for reducing estate taxes at death. So long as the gift is made to a qualifying charity, the gift is fully deducted from the taxable estate. Options like charitable remainder trusts and charitable lead trusts can benefit high net worth individuals.

One of the most enjoyable estate planning strategies is spending the estate down. At this level of wealth, it’s likely there will be some estate tax liability. You’ve earned the right to enjoy the wealth you’ve accumulated. If you’re reluctant to take this approach, remember the tax authorities are essentially paying 40% of the cost of that cruise in the Mediterranean, or that steak dinner.