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5 Estate Tax Planning Strategies You Should Follow

By Contributing Author

For some people, they view their wealth as something that they can pass onto their family members upon their death. They spent years of hard work to ensure the financial future of their loved ones; as such, determining who will inherit their assets and as to what proportions is extremely important.

However, if there is one thing that people tend to forget when doing estate planning, that is the potential effect of taxes on the value of the inheritance. This is where estate tax planning comes to the rescue. Primarily, estate tax planning aims to transfer as much property as possible to the heirs without paying so much taxes.
If you are thinking about your estate now, below are the five estate tax planning strategies you should follow:

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1. Determine Whether Your Estate Will Be Subject To Tax

Whether you are a wealthy or a middle-class person, it is important to check whether your estate will be taxed or not. This is an essential estate tax planning strategy because your beneficiaries might be surprised by the tax bill they have to pay upon the transfer of your assets to them.

For instance, even if you belong to a middle-class family, all your bank accounts, investments, and life insurance, among others, will be included in your estate. Also, if you are a business owner, your business is value will be added to the total value of your estate.

Once everything is included in your estate, find time to calculate the potential estate taxes your beneficiaries will have to pay. If you need professional help in your estate tax planning efforts, you can contact a dedicated estate planning lawyer to know whether all the components of your estate will be subject to tax or not.

2. Transfer Assets During Your Lifetime

It is important to note that reducing the estate taxes can be one of your first defense lines in protecting your assets for your loved ones. Thus, if you want to minimize your estate taxes, transferring your assets during your lifetime can be an excellent idea. When you give your assets while you are still alive, you can significantly reduce your taxable estate.

For example, you can pay directly to some of your educational and medical providers to benefit your loved ones. In such a case, these gift payments will not be taxed, and you can make sure your beneficiaries can benefit from this lifetime giving without thinking about your estate taxes.

3. Place Your Assets In A Trust

Another estate tax planning strategy to consider is the placement of your assets in a trust account. Typically, trust is one of the methods of preserving assets against any risks of losses. It works by placing some of your assets in the hands of a trustee for the beneficiary is benefit. With this estate
planning method, you can shield your wealth from the hefty estate taxes and ensure your beneficiary can receive all the assets placed in the trust.

Below are the common trusts used in estate tax planning:

  •  Grantor Retained Annuity Trust (GRAT) – If you want to minimize your gifts value, establishing some trusts, which includes a grantor retained annuity trust (GRAT), can be a great help. With this, you transfer assets to a trust for a specific number of years.

Throughout the term, you receive an annuity from the trust. These annuity payments will reduce the value of your gift for tax purposes.

  •  Qualified Terminable Interest Property Trust (QTIP) – This type of trust enables you, as a grantor, to give your assets to your surviving spouse and figure out how the assets are divided after the death of the surviving spouse. Under QTIP, the trust is income is given to the surviving spouse, and the balance is kept in the trust account until the spouse is dead. Moreover, when you have a QTIP, you can save from your estate tax liability because taxes are not assessed at your first spouse is dead.

As you can see, there is a variety of trusts to choose from, such as the ones mentioned above. Because of this, it is better to call a financial planner or an estate planning lawyer to help you determine how you are going to use these trusts to lower your estate taxes.

4. Purchase Extra Insurance To Minimize Estate Taxes

Realistically speaking, your life insurance policies value might be added to your overall estate and be subject to estate taxes. Hence, if you want to safeguard your estate by minimizing your taxes, you can buy extra insurance to ensure tax-free proceeds.

In other words, you should establish an irrevocable life insurance trust that will shoulder your estate taxes. Instead of adding the policy to the estate and push the tax bill to a higher amount, you can use such a trust to pay for the taxes after your death. If your life insurance policy is under your trust, the proceeds will not be included in the estate.

5. Use Your Exemption For The Appreciating Assets

Generally, the government grants individuals with a lifetime exemption from estate tax liabilities. Although this exemption is usually exercised upon death, you can use it any time to give away an asset to avoid payment of taxes.

For example, if you have a business that you want to grow and succeed in the coming years, you can apply this exemption to your business now so you can protect your heirs from a costly tax bill later when you die. In short, by gifting the asset while availing of the exemption limit, taxes will no longer be a problem.


Indeed, there are many ways to help you manage your estate and its corresponding tax liabilities. But, in any case, you should not forget to consult with experienced professionals, such as a tax expert or a lawyer, so everything runs smoothly. For instance, by selecting the best estate planning attorney, you can identify a wide range of strategies that can help handle your estate affairs efficiently and without hassle.

Therefore, if you consider conducting estate tax planning, keep these strategies in mind so you will exactly know what to do to reduce your estate tax liabilities upon transferring your assets to your designated heirs. Consequently, you are able to preserve your assets to your loved ones
and obtain more tax savings.



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