Estate tax planning can feel overwhelming, but with the right strategies, it’s possible to significantly reduce liabilities and preserve wealth for future generations. In this article, expert advice from a CEO and founder, alongside a President, offers clear, actionable insights on navigating this complex area. From leveraging lifetime gifting exemptions to employing estate freeze techniques, these strategies can make a big difference. Explore these six invaluable tips, plus several more, from top industry leaders to optimize your estate tax planning.
- Leverage Lifetime Gifting Exemptions
- Establish an Intentionally Defective Grantor Trust
- Form a Family Limited Partnership
- Set Up a Qualified Personal Residence Trust
- Use 1031 Exchange for DST Investments
- Utilize Annual Gift Exemption and Estate Freeze
Leverage Lifetime Gifting Exemptions
One effective tip for minimizing estate taxes is to take advantage of lifetime gifting exemptions. Personally, I’ve implemented this strategy by advising clients to transfer portions of their wealth to their heirs while still alive, leveraging the annual gift tax exclusion. In 2024, this allows individuals to gift up to $17,000 per recipient without incurring federal gift taxes or affecting their lifetime exemption.
Key considerations include:
- Start Early: Spreading gifts over several years avoids a large, taxable transfer.
- Use Trusts Strategically: Gifting into irrevocable trusts can protect assets from estate taxes while providing control over how they’re used.
- Understand State Laws: Some states impose their own estate or inheritance taxes, so planning should account for these.
- Plan for Appreciating Assets: Gifting assets likely to grow in value helps avoid paying taxes on that future appreciation.
The main takeaway is that proactive planning and understanding your exemptions can preserve more wealth for your loved ones while reducing estate tax burdens.
Vincent Hoonings
CEO, Founder, Wills Inc, dba Wills.com
Establish an Intentionally Defective Grantor Trust
I’ve found that one of the most effective strategies I’ve implemented with my clients at RVW Wealth is establishing an intentionally defective grantor trust (IDGT) for business interests. Just last quarter, I helped a family transfer their growing tech company into an IDGT, which froze the value for estate tax purposes while allowing them to continue paying income taxes on the trust’s earnings, essentially enabling more tax-free gifts to the next generation. While this strategy can be powerful, I always remind clients to carefully consider the irrevocable nature of the trust and ensure they retain enough assets for their own lifestyle needs.
Jonathan Gerber
President, RVW Wealth
Form a Family Limited Partnership
I recommend business owners consider forming a family limited partnership (FLP) to transfer assets like business interests or investments. One of my clients, who owned a small manufacturing firm in Chicago, used an FLP to pass a portion of the business to their children. This not only lowered the taxable value of the assets but also kept control of operations within the family. The key is ensuring proper documentation and compliance with IRS regulations, as improper setup can trigger penalties. Working with a skilled tax attorney and accountant is non-negotiable for this strategy.
Jon Morgan
CEO, Business and Finance Expert, Venture Smarter
Set Up a Qualified Personal Residence Trust
I often advise clients to set up a Qualified Personal Residence Trust (QPRT) when transferring property to their children. This allows them to gift their home at a lower taxable value while continuing to live in it for a specified term. I worked with a family in Denver who transferred their vacation home into a QPRT. They were able to significantly reduce estate taxes while keeping the property in the family. It’s important to discuss this option with both a financial planner and an attorney to make sure it fits your long-term plans.
Samantha Odo
Real Estate Sales Representative & Montreal Division Manager, Precondo
Use 1031 Exchange for DST Investments
Many clients at Deferred.com who are thinking about estate planning are increasingly using a 1031 exchange sell real estate holdings, defer capital gains taxes, and invest in Delaware Statutory Trusts (DSTs), which is a legal entity that allows investors to own fractional shares of income-generating real estate, such as commercial properties, while remaining passive owners.
This strategy is perfect for simplifying property ownership while minimizing estate taxes. For example, one client recently transitioned out of multiple self-managed rental properties into a DST holding high-quality commercial real estate assets. This allowed them to defer capital gains taxes, enjoy passive income without the hassle of active property management, and ensure their heirs wouldn’t inherit the responsibility of operating the properties—a key priority as they planned for retirement and their legacy.
DSTs are particularly powerful tools for estate planning because they provide fractional ownership, making it easy to divide the investment among heirs. Moreover, many clients take it a step further by eventually converting their DST interests into Operating Partnership (OP) units through a 721 exchange into a Real Estate Investment Trust (REIT). This not only retains the tax-deferred benefits of the original exchange but also enhances the flexibility of the asset by creating divisible, liquid OP units. These units are simpler to distribute among heirs and align well with a strategy that prioritizes generational wealth transfer while minimizing tax liability. This approach, often recommended by estate planners, is proving to be a game-changer for clients balancing tax efficiency with long-term family goals.
Judd Schoenholtz
Co-Founder & CEO, Deferred
Utilize Annual Gift Exemption and Estate Freeze
Taxpayers can use a range of estate planning strategies to minimize federal estate taxes. First, taxpayers should be aware that the donor (i.e., the gift-giver), and not the donee (i.e., the gift recipient), is subject to gift tax. Taxpayers should also be aware of the federal lifetime exemption amount and the state exemption amount since there is no parity between the two. Currently, the lifetime exemption amount is $13.61 million (2024), but the lifetime exemption amount is due to revert to $5 million (plus an inflation adjustment) on January 1, 2026.
For federal estate tax, taxpayers can minimize the estate tax by gifting to their heirs up to the annual gift exemption amount ($18,000 per person in 2024). The gift exclusion amount permits the donor to give each person up to the gift exemption amount without having to report the gift (and reducing the donor’s lifetime exemption amount or incurring gift tax liability). The annual gift exemption includes all gifts given by the donor to a donee in the year and includes non-monetary gifts.
Taxpayers can also use an strategy, known as an “Estate Freeze,” where the taxpayer gifts an asset that is expected to appreciate in the future. The amount of the gift is determined at the time of the gift, so gifting $1,000 in stock that increases to $10,000 results in a $1,000 gift. Assuming the taxpayer already gifted the donor the annual gift exemption amount, the gift would either reduce the taxpayer’s lifetime exemption amount by $1,000 or result in incurring gift tax liability (18% to up to 40%). The downside to an Estate Freeze is that the recipient will take the donor’s basis in the asset (i.e., a transferred basis) and the recipient will incur capital gains tax liability on the gain after a sale of the asset ($9,000 of gain taxed at the capital gain tax rate on the $1,000 gift that was sold for $10,000).
There are many nuances and pitfalls in tax planning, so taxpayers should consult a trust and estate attorney to discuss their goals and create an estate planning that minimizes estate taxes.
John Accursio
Attorney, Abrams Garfinkel Margolis Bergson, LLP
