High-net-worth individuals face steep tax bills when transferring assets to heirs. An estate planner walks through three concrete strategies that reduce what the IRS claims from your legacy.
The first approach involves maximizing annual gift tax exclusions. The IRS allows you to give $18,000 per person per year (2024) without filing a gift tax return. Married couples can gift $36,000 annually to each beneficiary. Over decades, this compounds into substantial wealth transfer without triggering estate taxes. Families with multiple children benefit most, as the exclusion applies to each recipient independently.
Irrevocable life insurance trusts (ILITs) form the second strategy. You transfer a life insurance policy into an ILIT, removing the death benefit from your taxable estate. The death benefit passes directly to your heirs outside probate, bypassing the federal estate tax entirely. This works especially well for people with large policies, since life insurance proceeds can balloon your taxable estate considerably.
Charitable remainder trusts represent the third option. You donate appreciated assets like stocks or real estate to a trust. The trust sells the asset without triggering capital gains tax immediately. You receive income from the trust during your lifetime, then the remainder goes to charity. You harvest an immediate income tax deduction while deferring taxes on the sale. This strategy suits people holding concentrated positions in stock or investment real estate.
Each strategy addresses different aspects of tax liability. Annual gifting works for steady, long-term wealth transfer. ILITs solve the life insurance tax problem directly. Charitable trusts handle large appreciated assets while providing a tax deduction now.
The federal estate tax threshold sits at $13.61 million per person in 2024. Above that amount, the government claims 40 percent of excess assets. Even those below the threshold benefit from these strategies since state estate taxes apply in