10 Effective Strategies to Reduce US Estate Tax Exposure

Written by Ashley Scher, CFP™

1. Utilize the Annual Gift Tax Exclusion

The US annual gift tax exclusion allows you to give a certain amount each year to any number of recipients without incurring a gift tax. For 2024, this amount is $18,000 per recipient. By consistently giving gifts up to this amount, you can reduce the size of your estate over time, which can lead to significant estate tax savings.

2. Maximize Lifetime Gift Exemption

In addition to the annual gift exclusion, the IRS allows a lifetime gift tax exemption. As of 2024, this exemption is $13.61 million per individual. By gifting within this exemption limit, you can transfer substantial wealth without facing gift taxes. Remember, using this exemption reduces the amount available for the estate tax exemption.  In 2026, the lifetime amount is set to reduce to est. $6 million per individual due to a sunset provision in the legislation.  That means there is a brief window where individuals or families with large estates over the lifetime limit can make significant gifts to utilize the additional exemption before it is permanently lost.

3. Establish Trusts

Trusts are powerful tools for estate planning. Various types of trusts can help minimize estate taxes:

• Revocable Living Trusts: While they do not reduce estate taxes, they help avoid probate, which can be costly and time-consuming.
• Irrevocable Life Insurance Trusts (ILITs): These remove life insurance proceeds from your taxable estate.
• Grantor Retained Annuity Trusts (GRATs): These trusts allow you to transfer appreciating assets while potentially paying little to no gift tax.
• Charitable Remainder Trusts (CRTs): This type of trust lets you convert assets into lifetime income, with the remainder going to charity, providing income tax deductions and reducing estate size.

4. Make Charitable Contributions

Donating to charitable organizations can significantly reduce estate taxes. Contributions made during your lifetime or through your will can qualify for charitable deductions, effectively lowering the taxable value of your estate.

5. Use Family Limited Partnerships (FLPs)

An FLP allows you to transfer assets to family members at a discounted value. By maintaining control over the assets while reducing their taxable value, FLPs can help minimize estate and gift taxes.

6. Strategize Asset Ownership

Joint ownership arrangements, such as joint tenancy with right of survivorship, can help avoid probate and may provide some estate tax benefits. Additionally, making your spouse the co-owner of assets can take advantage of the unlimited marital deduction, deferring estate taxes until the surviving spouse’s death.

7. Leverage Education and Medical Exclusions

Payments made directly to educational institutions for tuition or to medical providers for healthcare expenses are exempt from gift taxes. By paying these expenses for your beneficiaries, you can further reduce the size of your taxable estate.

8. Purchase Life Insurance

Life insurance can provide liquidity to pay estate taxes, ensuring that your heirs do not have to sell assets at a loss to cover tax liabilities. Policies held within an ILIT can avoid increasing your estate’s taxable value.

9. Plan for Portability

Portability allows a surviving spouse to inherit the unused portion of the deceased spouse’s estate tax exemption. Ensuring that your estate plan takes advantage of this can help maximize the combined exemption for married couples.

10. Regularly Review Your Estate Plan

Tax laws change, and so does your financial situation. Regularly reviewing and updating your estate plan ensures that you are taking advantage of the latest strategies and regulations to minimize your tax exposure.

Reducing estate and inheritance tax exposure requires careful planning and a thorough understanding of available strategies. By implementing these methods, you can ensure that your estate is distributed according to your wishes with minimal tax impact. Consult with your wealth manager and estate planning professionals to tailor these strategies to your unique situation and maximize the benefits for your heirs.

The Legal Stuff 

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Use of information:

• Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such.
• The views expressed in this article do not necessarily reflect the views of MASECO as a whole or any part thereof.
• The information contained herein is subject to copyright with all rights reserved.
• The investments and strategy noted in this document may not be suitable for all investors and making available the information in this document is not a representation by MASECO that any investment strategy is suitable for any particular client.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not constitute a recommendation, offer or solicitation to buy or sell any products or to adopt an investment strategy.
• Although the information is based on data which MASECO considers reliable, MASECO gives no assurance or guarantee that the information is accurate, current or complete and it should not be relied upon as such.

MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.  Information about potential tax benefits, including the levels, bases of and reliefs, from taxation is based on our understanding of current tax law and practice and may be subject to change.  We strongly recommend that every client seeks their own tax advice prior to acting on any of the tax mitigation opportunities described in this article. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future. 

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.