Tax Strategies for Estate Planning

Tax Strategies for Estate Planning

Estate planning is the process of arranging for the management and distribution of an individual’s assets in the case of death or incapacitation. This process involves various legal and financial strategies to ensure that a person’s wishes regarding their property and finances are carried out. Typical components of estate planning include drafting wills, creating trusts, designating beneficiaries, and strategic tax planning. Proper estate planning can help reduce estate taxes and ensure a smooth transfer of wealth to designated beneficiaries.


Leveraging the annual gift tax exclusion is one way to minimize estate taxes while transferring wealth to others. This provision allows individuals to transfer a designated amount of assets or property each year without incurring gift taxes. In 2024, the annual gift tax exclusion is $18,000 per person, meaning you can give up to $18,000 to as many people as you would like without triggering gift taxes. Many people use this exclusion to pass money to loved ones and reduce the value of their taxable estate, thereby lowering potential estate taxes for their beneficiaries.

Irrevocable Life Insurance Trust

An irrevocable life insurance trust (ILIT) helps reduce estate taxes by placing life insurance policies outside the taxable estate. Once established and funded, the ILIT becomes unchangeable, which means the policies within it are effectively removed from your taxable estate. Upon the grantor’s death, the life insurance policy’s death benefit is paid to the trust, and any named beneficiaries can receive the proceeds without incurring any income or estate taxes.

People often choose the annual gift tax exclusion to fund these trusts to pay the life insurance premiums. In 2024, the grantor can contribute up to $18,000 per beneficiary into the ILIT without tax consequences. However, a drawback of an ILIT is its irrevocable nature. Once established, any modifications require either a court order or unanimous consent from all beneficiaries, which can be difficult to obtain.

Charitable Trust

Charitable trusts are another way to reduce estate taxes while supporting charitable causes. The two primary types are charitable remainder trusts and charitable lead trusts, both are irrevocable. Charitable remainder trusts are with cash or securities, providing a regular income stream to the donor or designated beneficiaries. Remaining assets are transferred to the charity upon the donor’s passing or the expiration of the trust.  The difference with a charitable lead trust the charity receives an income stream during the life of the trust and upon termination of the trust the assets revert back to the donor.

If you have questions about estate planning and the various tax techniques involved, our dedicated estate planning specialists are here to help you navigate this complex process. Contact us today for personalized guidance!

Share This Story, Choose Your Platform!

Subscribe to Our Newsletter!

Discover More Articles!

Contact Us

Whether you know exactly what accounting service you need or have a tough question, The Innovative CPA Group team is here and ready to help. Let’s collaborate to accomplish your personal or business goals.

2024-05-02T18:59:06+00:00May 2nd, 2024|Business|

Share This Story, Choose Your Platform!

Go to Top