Estate planning is important for everyone. However, if you anticipate that your estate will be subject to estate taxes, planning becomes even more critical. Taxes can drastically reduce what your loved ones will inherit, but when you know what estate planning strategies to use, you can reduce your estate tax burden.
Why Is It Important to Plan for Estate Taxes?
If you exceed the lifetime gift/estate tax exemption of $13.99 million, any assets exceeding that amount will be subject to estate tax, and the maximum federal estate tax rate is 40%.
If your estate will be large enough to incur taxes, it’s important to start planning sooner rather than later. Every dollar of estate taxes paid is a dollar your loved ones won’t be able to inherit.
What Strategies Can Help Reduce Estate Taxes?
Creating irrevocable trusts, charitable giving, strategic gifting, and establishing a family limited partnership can all reduce the estate taxes you owe. Here’s a closer look at each strategy.
Creating Irrevocable Trusts
There are many different kinds of trusts, but generally, irrevocable trusts (which can’t be modified or revoked after creation) come with superior tax advantages. These are some of the irrevocable trusts most commonly used in estate planning:
- Irrevocable life insurance trusts
- Charitable remainder trusts (CRTs)
- Grantor-retained annuity trusts (GRATs)
- Special needs trusts
- Generation-skipping trusts
Irrevocable trusts are typically not subject to estate taxes. There’s another benefit, too — they can keep the assets they hold out of probate.
Charitable Giving
Charitable giving offers you a way to lower your estate tax burden and support charities you believe in. There are several different charitable giving strategies to choose from, but the most common are charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).
Both options lower the total value of your estate and qualify you for a tax break. If you choose a CRT, you can retain income from the assets in the trust during your lifetime.
Strategic Gifting
The $13.99 million lifetime exemption applies to both gifts and the total value of your estate. However, gifts that are less than the annual federal gift tax exclusion ($19,000 for 2025) don’t count toward that $13.99 million.
If you strategically make gifts under $19,000 to loved ones during your lifetime, you can lower the value of your estate while still ensuring most of your wealth goes to your heirs, not the government.
Establishing a Family Limited Partnership
If you have a family business or large assets (like investment properties) that you want to pass to family members after your death, it may be worth creating a family limited partnership.
This business arrangement allows you to pass ownership of these assets to your family members, and it also keeps those assets out of your estate.
Need Help With Your Estate Plan?
Estate planning can be complex, but you don’t have to handle it alone. At Mason Law and Planning Group, our estate planning attorneys are committed to helping you secure your legacy and ensure your loved ones are taken care of after your death.
We don’t believe in one-size-fits-all solutions, and we’re ready to put in the effort to build a unique estate plan for you. Contact us today to schedule your initial consultation.