Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes
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Several types of tax can impact wealth transfers. They include estate tax (40% in 2025), as well as capital gains tax on appreciated assets and ordinary income taxes on tax-qualified accounts, according to Matthew Chancey, Certified Financial Planner and author of 'Tax Alpha Solutions: Effective Tax Management Strategies For High-Net-Worth Investors.'
In 2025, estate tax only applies to estates that exceed $13.99 million ($27.98 for married couples) in fair market value, per the IRS website. Beginning next year, the exemption increases to $15 million, according to the Tax Foundation. However, Chancey noted even if your estate isn't impacted by estate tax, your heirs could still have capital gains and income tax to deal with.
GOBankingRates spoke with Chancey and other financial advisors about the strategies they use to help their clients minimize taxes on transferred wealth.
Take Advantage of Step Up in Cost Basis
'One of the best parts of the tax code is called 'stepped up cost basis at death,' which means when our parents pass on and leave assets to us as heirs […] capital gain taxes can be avoided since the assets are now considered to have stepped up their cost basis to current FMV [fair market value], thus eliminating any capital gains,' Chancey said.
You can use this strategy for a variety of appreciating assets, including taxable brokerage accounts and real estate.
To visualize how this works, say the cost to acquire your home (its cost basis) was $200,000, and its fair market value is $400,000 now. If you gift the home to your child and they later sell it for $500,000, they'll pay capital gains tax on $300,000 ($500,000 less the $200,000 cost basis).
If, on the other hand, they inherit the house and sell it for $500,000, they'll only pay capital gains tax on $100,000 — $500,000 less the stepped up basis of $400,000.
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Reconsider Joint Ownership
Some families like to jointly title property as a means of estate planning, according to Allison Harrison, founder and principal attorney of ALH Law Group, which specializes in estate planning for the LGBTQ+ community. However, this approach is problematic.
'The property is now subject to all the owner's creditors, and the survivor does not get a step-up in basis for capital gains purposes,' Harrison said.
Take Out Permanent Life Insurance
'Life insurance is a great way to provide access to capital today, but grow it in a tax free way for the beneficiaries,' Harrison told GOBankingRates.
A properly structured whole life policy, for example, is a permanent life insurance policy that can accrue interest on a tax-deferred basis and earn dividends tax-free, per Guardian. Under most circumstances, your beneficiaries won't have to pay income tax on insurance money that passes to them directly, in one lump sum, according to the IRS.
Keep Gifts at $19,000 per Year or Less
You pay gift tax of up to 40% if your gifts exceed the lifetime limit of $13.99 million (for 2025). For tax year 2025, gifts of up to $19,000 per year, per recipient, don't count toward the lifetime limit. Nor do they count toward your $13.99 million estate tax exemption, as they do if they exceed $19,000.
The rules are the same for the generation-skipping tax on gifts to anyone at least 37.5 years younger than you, per TurboTax.
'Hugely important for people over the $15 million exemption level [for 2026]. That is potentially a double tax without planning,' warned Matthew Wiley of Wiley Law.
You can work around the gift limits entirely by paying the recipient's tuition, health insurance or unreimbursed medical bills instead of gifting them cash or other assets. These payments are non-taxable as long as you pay them directly to qualified schools or to insurance companies or healthcare providers, according to Jackson Hewitt.
Place Assets in an Irrevocable Trust
A trust allows a third party, called a trustee, to hold assets you transfer into the trust for beneficiaries you designate. After you die, the trustee distributes the assets to the beneficiaries, according to Fidelity.
An irrevocable trust can't be changed, but it can minimize estate tax and your heirs' income tax liability, while also shielding your estate from creditors and lawsuits.
Wiley named the following irrevocable trusts as his favorite strategies for shielding wealth transfers against tax:
Spousal lifetime access trust
Irrevocable life insurance trust
Domestic asset protection trust (available in select states)
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This article originally appeared on GOBankingRates.com: Top 5 Estate Planning Strategies To Avoid 'Great Wealth Transfer' Taxes
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