Tax Strategies: Estate Tax

Estate Tax

1. Utilize estate tax exemption to your advantage: Under current law, upon death married couples can pass on up to $24.12M ($12.06M per individual - 2022), without incurring gift or estate tax, and this exemption amount is set to drop back down to $10M ($5M per individual - adjusted for inflation) in 2026, so utilize the exemption while you can.
   
   External Guide: https://www.kiplinger.com/retirement/estate-planning/604534/dont-throw-away-a-1206m-estate-tax-exemption-by-accident

2. Set up "dynasty" trust: Set up a "dynasty" trust to last for multiple generations, using some or all of both the lifetime gift tax exemption and the generation-skipping tax exemption. This allows the trust to grow "tax-free" (since the income tax was paid by the wealthy individual originally setting up the trust), and estate-tax free since the trust moves the assets out of the wealthy individual's estate.
   
   External Guide: https://www.kiplinger.com/retirement/estate-planning/603546/a-smart-option-for-transferring-wealth-through-generations-the

3. Utilize intra-family loans: Use intra-family loans to move money out of your estate as long as it's treated as a bona fide (aka real) loan (e.g., using a loan to enable your children to own the property you live in, and pay them "rent" as parents)
   
   External Guide: https://www.kitces.com/blog/an-efficient-solution-to-implement-intra-family-mortgage-loan-strategies/

4. GRATs: A Grantor Retained Annuity Trust (GRAT) helps you transfer wealth to an heir while reducing tax liability by allowing the grantor to direct assets into a temporary trust and freeze the value.
   
   External Guide: https://www.nerdwallet.com/article/investing/grat

5. SLATs: A Spousal Limited Access Trust (SLAT) is similar to a GRAT but is set up by a donor spouse for the benefit of the beneficiary spouse.
   
   External Guide: https://www.whitecoatinvestor.com/spousal-lifetime-access-trust/

6. Sell to IDGTs: Establish an Intentionally Defective Grantor Trust (IDGT)—a unique trust structure where the income of the trust is still the grantor's for income tax purposes but the assets of the trust are excluded from the grantor's estate for estate tax purposes—and then sell the grantor's business to it.
   
   External Guide: https://www.kitces.com/blog/idgt-installment-sale-to-intentionally-defective-grantor-trust-rules/

7. Late GST allocations: By purposely making a late manual allocation of Generation-Skipping Transfer (GST) exemption on a GST trust (which include gifts or inheritance to "skip persons" who are at least two generations below you), you can avoid the GST transfer tax.
   
   External Guide: https://www.kiplinger.com/taxes/tax-planning/603625/generation-skipping-transfer-tax-basics

8. Create a Family Limited Partnership: Transfer assets to heirs using partnership equity each year to avoid taxation.
   
   External Guide: https://www.thebalance.com/family-limited-partnership-gifts-358121

9. Move equity shares into irrevocable trust: Moving equity shares into an irrevocable trust for heirs allows you to transfer assets without incurring any tax on the assets.
   
   External Guide: https://www.thebalance.com/what-is-an-irrevocable-trust-3505400

Other Tax Strategy Guides:

Tax Efficient Portfolio Management
Income Tax
Homeowner / Real Estate
Gifting / Charitable Donations
Self-Employed / Business Owner

Ready to implement these strategies, but don’t know how to execute the plan? 

Check out our blog post on finding the best tax providers here.

We are often asked for recommendations for tax preparation (actually doing the forms) to complement the work we do with families on tax strategizing (planning in advance to lower future tax bills.) We were frustrated that no "Yelp" existed for accountants/CPAs/tax preparers, despite the fact that wealth advisors so often traded recommendations amongst themselves!  So we put together this list based on recommendations from various advisors. Check it out here.

Steward ‘s mission is opening up the 1%’s wealth strategies to America’s up-and-coming families with a combination of 21st century tech and trusted advisors. We help families determine how, where, and when to invest and save on taxes in plain-English, with minimal time and effort. Steward can help determine the best way for you to save taxes, or we can at least get the conversation started. Give it a try here.

Do you want someone to guide you and your partner through saving taxes and reaching financial freedom? Reach out to me at ami@oursteward.com or schedule a free 15 min consultation to see if we’re a good mutual fit.

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