Estate Taxes: The answer should be zero

For most people Estate Planning conjures up visions of an important looking binder that holds all kinds of trusts, wills and health care directives. While all of these are very important, a critical corner post of estate planning is minimizing taxes that will be due when the estate passes.

The current federal taxable limit for estates is set at $5.25 million. It is expected that this will increase by about $100,000 per year as inflation adjustment. This means that estates in excess of this amount will owe taxes at a healthy 40% rate upon transfer. There are multiple strategies that can be used to reduce the tax load on larger estates – if not altogether eliminate the tax.

Planning for estate taxes can be a complex matter and the number and type of strategies that are used will depend upon the size of the estate and the type of assets.

A very powerful strategy for estate tax reduction involves using a high value Life Insurance. The premiums for the life insurance policy reduce the current size of the estate, and at the same time, the beneficiaries receive the life insurance proceeds estate tax free. Another alternative that is becoming more popular, especially for estates that have highly appreciated assets like stocks and real estate, is donating a portion of the estate to charity using a Charitable Remainder Trust (“CRT”). CRTs can be used to offset income taxes now and estate taxes later on.

Families with high net worth, especially business owners who have seen the value of their companies grow significantly, and those who have substantial real estate holdings, might find it beneficial to use more complex strategies for transferring wealth, using arrangements such as Grantor Trusts, Dynasty Trusts and Grantor Related Annuity Trusts.

Another choice that is available to individuals is the option of transferring wealth during their lifetime, instead off at death. If it is expected that the value of the assets held would appreciate considerably, a properly structured trust can shelter the appreciation from estate taxes. Also Family Limited Partnerships and similar structures can be used for valuation discounts, which might further reduce or eliminate the estate taxes owed.

The key to reducing the estate tax burden is smart and early planning.

If you have questions related to estate planning taxes and insurance, please send an email to