With the passage of the “One Big Beautiful Bill” one of the largest outstanding questions in estate planning has been settled (for now at least). The exclusion amount for gift and inheritance taxes is now set at $15 million dollars per person in 2026 and will be increased with inflation beyond that. A married couple can now give away or leave to their heirs up to $30 million before they will need to pay the dreaded 40% inheritance tax.
While this is good news for the many families with estates under $30 million, planning to minimize inheritance taxes is essential for any family who wishes to leave more of their legacy to their chosen inheritors. In 2024, the federal government collected approximately 32 billion dollars in estate and gift tax revenue. (Congress.gov). With coordinated tax planning you can legally minimize the tax burden on your estate.
Fundamentally, inheritance tax planning involves removing assets from your estate in a way that allows you to maintain control, keep economic benefits or achieve your specific financial goals.
Maximize your annual gifting
The most straightforward way to reduce your estate is to simply give it away. By utilizing the annual exclusion amount you can pass a significant amount to your heirs with no tax impact. The annual gift exclusion is currently $19,000 per person. A married couple can give a combined $38,000 per person per year to anyone they choose without affecting the lifetime $15 million exclusion amount. This can be given directly or placed in a 529 or UTMA account for minors.
Another opportunity for tax free gifting is, direct education and medical expenses. Any amount paid directly to the institutions for these is not subject to the annual exclusion amounts.
Use of irrevocable trusts
Irrevocable trusts, such as grantor trusts, life insurance trusts, charitable trusts and qualified residence trusts, can be used to remove assets from an estate while maintaining some benefit or control of the assets for the lifetime of the grantor. These are most effective when highly appreciating assets are placed into the trust. Assets placed in an irrevocable trust will reduce your lifetime exemption amount when they are transferred to the trust. The earlier the assets are placed in a trust the more tax savings can be realized.
The income from assets placed in a Grantor Retained Annuity Trust (GRAT) can be withdrawn, used by and taxed to the grantor, giving you the economic benefit of the assets while removing the appreciated value from your estate.
Similarly, a Qualified Personal Residence Trust (QPRT) can hold the grantors’ residence. The Grantor retains the right to the use of the property for their lifetime. Eventually the property can pass to their heirs outside of the estate.
Irrevocable trusts have complicated tax rules and have their own tax filing and administrative requirements. They should be implemented by experienced professionals who understand your specific circumstances, goals and constraints.
Family Limited Partnership (FLP)
An FLP is an effective way to transfer assets (real estate, business interest or investments) to the next generation while maintaining control of the assets in question. Family members are gifted or sold Limited Partnership interests while you retain control of the FLP as a General Partner typically with a 1% ownership stake. Since the limited partnerships lack control the value of their interests are generally discounted. You can give your heirs an economic interest in the business while maintaining full control.
Charitable giving and foundations
For those who are committed to charitable gifting, setting up a foundation can be an excellent way to both reduce your taxable estate and fulfill your charitable legacy for years to come. Assets can be placed into a family foundation where they can continue to grow. You will receive a deduction, subject to certain limits, in the year that the assets are placed in the foundation. The assets can be invested and given to the charities of your choice while you are alive, and your family can continue the foundation after your passing to honor your legacy.
Contact us today to get started
Effective estate planning is a complicated and very personal process. The right plan depends greatly on your own personal goals and desires for your legacy. These were only a few of the available strategies that can have a dramatic impact on your legacy and your final tax bill. At FCA Corp we are dedicated to helping you find the right solution for your specific estate plan.
Source: Selected Issues in Tax Reform: The Estate and Gift Tax
