For individuals with estates exceeding the federal estate tax exemption, proactive planning can significantly reduce tax liability and preserve wealth for future generations.
Federal estate tax exemption: The current exemption is historically high, but it is scheduled to decrease significantly in the coming years. This creates urgency for high-net-worth individuals to act now.
State estate taxes: Several states impose their own estate taxes with much lower exemption thresholds. States like Massachusetts and Oregon have exemptions as low as $1 million. Residency planning may be appropriate.
Planning strategies:
Annual gift exclusion: You can gift up to the annual exclusion amount per person per year without gift tax consequences. For married couples, this effectively doubles.
Irrevocable Life Insurance Trust (ILIT): Removes life insurance proceeds from your taxable estate while providing liquidity for estate tax payment.
Grantor Retained Annuity Trust (GRAT): Allows transfer of appreciating assets to beneficiaries at reduced or zero gift tax cost.
Charitable planning: Charitable remainder trusts (CRTs) and donor-advised funds provide income tax deductions while reducing your taxable estate.
Family Limited Partnerships (FLPs): Can facilitate wealth transfer at discounted values while maintaining control over family assets.
Work with a team including an estate planning attorney, CPA, and financial advisor to implement a comprehensive strategy tailored to your situation.