Planning your estate is about more than just deciding who gets what. As a revocable living trust lawyer can explain, it’s also about making sure your loved ones get the most out of what you leave behind. In 2024, there are several effective strategies to help minimize estate taxes and protect your wealth. Let’s explore five key approaches: gifting, charitable donations, discount valuations of LLCs and FLPs, installment sales to Intentionally Defective Grantor Trusts (IDGTs), and intra-family loans.
Gifting Allows You To Share The Wealth Now
One of the simplest and most effective ways to reduce your estate is through gifting. The federal gift tax exclusion for 2024 allows you to give up to $17,000 per person without incurring any gift tax. By gifting assets to your loved ones during your lifetime, you can significantly lower the value of your taxable estate. This strategy not only reduces future estate taxes but also allows you to see the benefits of your generosity during your lifetime.
Charitable Donations Allow You To Give Back And Save
Charitable donations are another excellent way to reduce your estate taxes as our friends at Stuart Green Law, PLLC can attest. When you donate to a qualified charity, the value of the donation is deducted from your taxable estate. This not only supports causes you care about but also provides significant tax benefits. Whether you choose to give a lump sum or set up a charitable trust, these donations can make a big difference in the size of your estate tax bill.
Discount Valuations Of LLCs And FLPs Allow For Strategic Reductions
If you have a family business or investment holdings, consider transferring these assets into a Limited Liability Company (LLC) or a Family Limited Partnership (FLP). By doing so, you can take advantage of valuation discounts. Because these interests are not easily marketable and often come with restrictions, their appraised value can be significantly lower than the actual value of the underlying assets. This means you can transfer more wealth while using less of your estate tax exemption.
Installment Sales To IDGTs Are A Win-Win Strategy
An Intentionally Defective Grantor Trust (IDGT) is a powerful estate planning tool. By selling assets to an IDGT in exchange for an installment note, you can freeze the value of these assets for estate tax purposes. The trust pays you back over time, and any appreciation in the value of the assets occurs outside of your estate. This strategy allows you to transfer appreciating assets to your heirs without incurring gift or estate taxes on the growth.
Intra-Family Loans Allows You To Keep It In The Family
Intra-family loans are another effective estate planning strategy. By lending money to family members at the IRS-approved interest rate, you can help them purchase appreciating assets or start businesses. The interest payments are taxable to you, but the appreciation on the loaned funds remains outside your estate. This allows your family to benefit from the growth while keeping the estate taxes in check.
Why These Strategies Matter
The current federal estate tax exemption is $13.61 million per individual, but it’s set to decrease in 2026 unless Congress acts to extend it. This potential reduction makes it more important than ever to plan ahead. By using these strategies, you can maximize the amount of wealth that passes to your loved ones while minimizing the impact of estate taxes.
Putting It All Together
Combining these strategies can create a comprehensive estate plan that addresses your unique situation. Gifting and charitable donations can immediately reduce the size of your estate. Discount valuations of LLCs and FLPs can lower the taxable value of your business interests. Installment sales to IDGTs and intra-family loans can help you transfer appreciating assets efficiently.
Working with an experienced estate planning attorney can help you navigate these strategies and tailor them to your needs. By taking action now, you can ensure that more of your hard-earned wealth goes to the people and causes you care about, rather than to taxes.