Tax Planning Topics
Tax Planning Strategies
Advanced tax optimization techniques for high net worth individuals
Federal Estate Tax Overview
The federal estate tax applies to the transfer of property at death. For 2025, the estate and gift tax exemption has been adjusted for inflation, providing significant planning opportunities for high net worth families.
2025 Federal Exemptions
Estate Tax Exemption (Single)
$13.99 million
Estate Tax Exemption (Married)
$27.98 million
Annual Gift Exclusion
$19,000
Top Estate Tax Rate
40%
Key Planning Strategies
Portability Election
Surviving spouses can elect to use their deceased spouse's unused exemption amount (DSUE), effectively doubling the exemption for married couples who plan properly.
Lifetime Gifting
Using your lifetime exemption for gifts removes future appreciation from your estate. With exemptions potentially decreasing in 2026, now may be the time to act.
Irrevocable Trusts
Various trust structures (GRATs, SLATs, ILITs) can leverage exemptions while maintaining some control or benefit from transferred assets.
2026 Sunset Provision
Current exemption amounts are scheduled to be cut approximately in half in 2026 unless Congress acts. Planning now can lock in today's higher exemptions.
State Tax Considerations
Thirteen states and DC impose their own estate or inheritance taxes, often with much lower exemptions than the federal level. State planning is crucial for comprehensive tax optimization.
States with Estate Tax (2025)
| State | Exemption | Top Rate |
|---|---|---|
| Connecticut | $13.61M | 12% |
| Hawaii | $5.49M | 20% |
| Illinois | $4M | 16% |
| Maine | $6.8M | 12% |
| Maryland | $5M | 16% |
| Massachusetts | $2M | 16% |
| Minnesota | $3M | 16% |
| New York | $7.1M | 16% |
| Oregon | $1M | 16% |
| Rhode Island | $1.77M | 16% |
| Vermont | $5M | 16% |
| Washington | $2.19M | 20% |
| DC | $4.87M | 16% |
State Planning Strategies
Residency Planning
Establishing residency in a no-tax state can save millions. Consider factors like days present, voter registration, driver's license, and property ownership.
QTIP Elections
State-only QTIP elections can defer state estate taxes until the second death while paying federal tax at the first death.
Incomplete Gift Trusts
Nevada and Delaware trusts can help residents of high-tax states avoid state income tax on trust income while maintaining some control.
Asset Location
Strategic placement of assets in different states or entities can minimize overall state tax exposure.
Gift Tax Strategies
Strategic gifting can significantly reduce estate taxes while providing for family members and maintaining family wealth across generations.
Annual Exclusion Gifting
For 2025, you can gift $$19,000 per person per year without using any lifetime exemption.
Direct Gifts
- • Cash or securities
- • Real estate interests
- • Business interests
- • Tangible personal property
Trust Contributions
- • Crummey trusts
- • 529 plan superfunding
- • UTMA/UGMA accounts
- • Special needs trusts
Advanced Gifting Techniques
Grantor Retained Annuity Trusts (GRATs)
Transfer asset appreciation to beneficiaries with minimal gift tax cost. Particularly effective in low interest rate environments for high-growth assets.
Charitable Lead Trusts (CLTs)
Support charity while passing assets to heirs at reduced gift tax values. The charitable deduction can offset gift tax on the remainder interest.
Sales to Intentionally Defective Grantor Trusts
Sell assets to a trust in exchange for a promissory note, freezing estate value while shifting appreciation to beneficiaries.
Generation-Skipping Transfer (GST) Tax
The GST tax applies to transfers to grandchildren and more remote descendants. The 2025 GST exemption is $$13.99 million.
- Leverage GST exemption with dynasty trusts
- Consider direct skips vs. taxable distributions
- Allocate GST exemption to maximize leverage
Charitable Deductions
Charitable giving provides both personal satisfaction and significant tax benefits. Understanding the rules helps maximize both your impact and tax savings.
Income Tax Deductions
Cash Contributions
Up to 60% of AGI
Appreciated Securities
Up to 30% of AGI
Carryforward Period
5 years
Estate Tax Benefits
Estate Tax Deduction
Unlimited
Reduces Taxable Estate
Dollar-for-dollar
No AMT Add-back
Full benefit
Charitable Vehicles Comparison
| Vehicle | Best For | Tax Benefits |
|---|---|---|
| Donor Advised Fund | Flexible timing, multiple charities | Immediate deduction, tax-free growth |
| Charitable Remainder Trust | Income stream + charity | Partial deduction, estate tax reduction |
| Charitable Lead Trust | Estate planning + charity | Gift/estate tax deduction |
| Private Foundation | Family legacy, control | Deduction limits, excise taxes |
Estate Planning for High Net Worth Individuals
High net worth individuals face unique challenges and opportunities in estate planning. A comprehensive approach addresses taxes, asset protection, and family dynamics.
Wealth Levels and Strategies
$5M - $15M Net Worth
- • Focus on federal and state estate tax planning
- • Basic trust structures (revocable/irrevocable trusts)
- • Annual exclusion gifting programs
- • Life insurance for liquidity
$15M - $50M Net Worth
- • Advanced trust strategies (GRATs, CLTs, SLATs)
- • Family limited partnerships
- • Generation-skipping planning
- • Charitable planning integration
$50M+ Net Worth
- • Dynasty trust planning
- • Private placement life insurance
- • Family office considerations
- • Multi-generational wealth transfer
Key Planning Priorities
Tax Optimization
Minimize federal and state estate taxes through strategic use of exemptions, deductions, and advanced planning techniques.
Asset Protection
Shield assets from creditors, lawsuits, and divorces through domestic and offshore trust structures.
Business Succession
Ensure smooth transition of family businesses while minimizing tax impact and maintaining family harmony.
Philanthropic Goals
Create lasting charitable impact while maximizing tax benefits through strategic giving vehicles.
Professional Team
Successful HNW estate planning requires a coordinated team including estate planning attorneys, CPAs, financial advisors, and insurance specialists. Regular reviews ensure strategies remain current with changing laws and family circumstances.
Maximizing Charitable Deductions
Strategic charitable planning can significantly reduce your tax burden while supporting causes you care about. These advanced strategies help maximize both impact and deductions.
Bunching Strategies
"Bunching" involves concentrating multiple years of charitable contributions into a single tax year to exceed the standard deduction threshold.
Example: 5-Year Bunching
• Normal giving: $20,000/year = $100,000 over 5 years
• Bunched giving: $100,000 in year 1, $0 in years 2-5
• Result: Itemize in year 1, standard deduction in years 2-5
Potential tax savings: $15,000-$25,000 depending on tax bracket
Appreciated Asset Donations
Double Tax Benefit
- • Deduct full fair market value
- • Avoid capital gains tax
- • No wash sale rules
- • Rebalance portfolio tax-free
Common Mistakes
- • Donating depreciated assets
- • Missing AGI limits
- • Poor timing of gifts
- • Inadequate documentation
Stacking Techniques
Donor Advised Fund + Bunching
Fund a DAF with multiple years of giving in a high-income year, then recommend grants over time. Combines immediate deduction with flexible giving timeline.
Charitable Remainder Trust + Estate Plan
CRT provides lifetime income, immediate deduction, and removes assets from estate. Use life insurance to replace charitable remainder for heirs.
IRA Charitable Rollover + RMD
Direct IRA distributions to charity (up to $100,000/year) satisfy RMDs without increasing AGI, preserving other tax benefits.
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