logo
Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

Yahoo2 days ago
The United States is about two years into a Great Wealth Transfer that will see an estimated $84.4 trillion in assets pass from older to younger generations by 2045. Generational wealth preservation is a priority for many of these families, and for some, minimizing tax liability is an important way to achieve it.
Trending Now:
Learn More:
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.
Consider This:
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)
More From GOBankingRates
6 Big Shakeups Coming to Social Security in 2025
This article originally appeared on GOBankingRates.com: Top 5 Estate Planning Strategies To Avoid 'Great Wealth Transfer' Taxes
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

DC has highest threshold for top 1 percent
DC has highest threshold for top 1 percent

The Hill

time9 hours ago

  • The Hill

DC has highest threshold for top 1 percent

The nation's capital emerged as the location with the highest threshold to be the top one percent of earners, a new study found. The new study by personal finance site SmartAsset analyzed households that bring in enough money annually to be considered among the top one percent of earners in each state and the nation's capital. The study was based on the 2022 tax return data, the latest available from the IRS, and adjusted for 2025 dollars. The study found the District of Columbia has the highest necessary threshold to rank as a top earner, where a household needs an income of about $1.07 million, according to SmartAsset. Only about 3,300 households in D.C. qualify. There's only one other location where it takes more than $1 million to fall under the category. Connecticut falls in a close second, whose residents must earn roughly $1.06 annually to be in the top 1 percent. Nationwide, there are about 1.5 million households that bring in enough income to be among the top one percent if earners in their state. The average threshold to rank among the nation's top earners is $731,000 — and in 11 states and the District of Columbia, you'll need more than that. West Virginia proved to be the state with the lowest income needed to be considered the top one percent of earners in the state. There, residents would need to earn $416,300 annually to fall under the category, and about 7,300 households fall into that category. Only three other states — Mississippi, New Mexico, and Kentucky — would have a household income under half a million dollars push a household into the top earners group. SmartAsset this year also found that a single person living in the nation's largest cities would need an income of at least $85,000 to 'live comfortably,' and a family of four would need about $200,000 to do the same. The data comes as inflation continues to put more pressure on households nationwide. While President Trump has pressed for lower interest rates, economists warn such a move could drive inflation higher. Trump insisted, though, that inflation has settled, and he is pressing Federal Reserve Chair Jerome Powell to lower interest rates. Still, Americans are largely happy with the way Trump has handled inflation as he marks six months into his second term, with 64 percent in a CBS News/YouGov poll released Sunday saying they disapprove of how the president is handling the issue.

Government Watchdog Confirms Mass Exodus Of IRS Employees—More Cuts Are Expected
Government Watchdog Confirms Mass Exodus Of IRS Employees—More Cuts Are Expected

Forbes

time10 hours ago

  • Forbes

Government Watchdog Confirms Mass Exodus Of IRS Employees—More Cuts Are Expected

WASHINGTON, DC - APRIL 15: The Internal Revenue Service (IRS) building stands on April 15, 2019 in Washington, DC. (Photo by) Getty Images The IRS workforce dropped from 103,000 employees in January 2025 to approximately 77,000 in May 2025 (a 25% reduction). Those numbers, which have been previously reported, have now been confirmed by the Treasury Inspector General for Tax Administration (TIGTA). According to IRS records, more than 25,000 employees either separated, accepted a deferred resignation program offer, or took some other incentive to leave. These departures represent 25% of the IRS's workforce—and some job positions were impacted more than others. For example, approximately 27% of tax examiners (they review and process tax returns) and 26% of revenue agents (they conduct audits) left the agency. Beginning in January 2025, the IRS began to take steps to reduce the size of its workforce. This was the result of executive orders issued by President Donald Trump and subsequent guidance from the Office of Personnel Management (OPM). While the President has repeatedly called for significant reductions in the size and scope of the federal government workforce, the tax agency has been a particular target. In February 2025, the Internal Revenue Service had approximately 103,000 employees. By March, more than 11,400 of those workers had received termination notices as probationary employees or voluntarily resigned under the so-called "Fork in the Road" or Deferred Resignation Program (DRP) pushed by the Department of Government Efficiency (DOGE). Depending on their circumstance, IRS employees could be eligible for one of three Treasury incentive offerings: (1) Treasury Deferred Resignation Program; (2) Treasury Deferred Resignation Program and Voluntary Early Retirement Authority ; or (3) Voluntary Separation Incentive Payment. Treasury Deferred Resignation Program (TDRP version 1) The deferred resignation program allowed federal employees to resign but retain all pay and benefits through September 30, 2025, or later if the employee's retirement date was between October 1 and December 31, 2025. Employees who were working from home and accepted this offer were also exempted from any return-to-office requirements. Employees had until February 6 to opt into the program. The IRS subsequently recalled some of these resigned workers to work, noting that specific, critical tax return filing season positions would be exempt from the DRP until May 15, 2025. Those who had previously accepted the offer and stopped working but fell within the exception were advised they would be told when to return to work. As of May 2025, 4,575 IRS employees were approved for the program. These employees are on administrative leave with pay and benefits until their separation—in other words, the government has been paying these employees to not work. Treasury Deferred Resignation Program (TDRP and VERA) In April 2025, the IRS offered a second DRP to its employees. This version also included paid leave and benefits through September 30, 2025. Employees were also offered the opportunity to claim an 'early out' retirement. Under the Voluntary Early Retirement Authority (VERA) program, the age and service requirements for retirement were temporarily lowered to increase the number of employees who are eligible for retirement. Employees taking the VERA were required to officially separate under the TDRP. Over 23,000 employees applied for the TDRP. TIGTA has confirmed that 17,071 employees were approved. Voluntary Separation Incentive Payment (VSIP) The Voluntary Separation Incentive Payment (VSIP) was widely referred to as a 'buyout.' Under the VSIP, agencies can offer employees lump-sum payments up to $25,000 (or the employee's severance pay amount, whichever is less) as an incentive to retire or resign. TIGTA has confirmed that 776 employees were approved for the VSIP. Probationary Employees In January 2025, the IRS, like other federal agencies, was asked to identify all employees on probationary periods. While probationary employees are often recent hires (meaning within the last one to two years), they don't have to be—those who have been serving for years but were recently moved or promoted into a new position also qualify as probationary. The IRS subsequently fired approximately 7,000 probationary employees in response to an executive order signed by President Trump on February 11, 2025. Following the order, the Office of Personnel Management advised various federal agencies, including the Department of the Treasury (which includes the IRS), to fire non-essential probationary employees. Several legal challenges followed, and in March, U.S. District Court Judge William Alsup for the Northern District of California ordered six agencies, including the Treasury Department, to rehire the employees. In his ruling, Alsup said the federal government was required to follow normal reduction in force (RIF) rules. The government appealed the ruling—that case is currently pending in the Ninth Circuit Court of Appeals. In the meantime, the matter was escalated to the U.S. Supreme Court, which paused Alsup's order on administrative grounds. The unsigned Supreme Court order indicated that the group of unions and non-profit groups lacked standing to sue. Standing is a legal term that refers to your right to bring a lawsuit or have a court hear your case—to be heard, you typically have to show that another party has harmed you and that the only fix for that harm can be found in court. The idea is to ensure that matters that end up in court aren't frivolous and are raised by the right parties. The Supreme Court's order does not mean that it found the firings lawful, just that the wrong parties raised the issue in court. In May 2025, IRS and Treasury decided to return all probationary employees to full work status by May 23, 2025. However, in July 2025, the U.S. Supreme Court lifted the federal court's prohibition on covered agencies implementing Agency RIF and Reorganization Plans and issuing or executing RIF notices. According to TIGTA, it is unclear whether any terminated probationary employees called back to work will be subject to a large-scale RIF. Reduction in Force Actions and Administrative Leave In February 2025, the President signed an executive order that advised federal agencies to begin preparations to initiate large-scale RIFs. In April 2025, the IRS began implementing a RIF that resulted in involuntary staffing cuts across multiple offices and job categories. As of May 2025, 294 employees in three offices (Office of Civil Rights and Compliance, Taxpayer Experience Office and Taxpayer Service's Office of Equity, Diversity and Inclusion) received RIF notices. However, a district judge placed an injunction on the removal of these employees. In addition, in March 2025, 48 senior Information Technology employees were placed on administrative leave. Of the 48 employees, 26 took the Treasury incentive offerings, while 22 remain on administrative leave. Other Separations TIGTA also identified an additional 3,093 employees classified as other separations—such as resignations, retirements, and terminations—since January 2025. According to the IRS, 752 of these are probationary employees who received termination notices and decided to resign. These employees did not participate in the DRP, TDRP, or other offerings from the IRS. Business Units Business units at the IRS were impacted at different rates. IRS employee reductions, by business unit. Kelly Phillips Erb The top six business units affected by the cuts are: Small Business/Self Employed (SB/SE) helps small business and self-employed taxpayers understand and meet their tax obligations. SB/SE reported a 35% reduction. The Human Capital Office (HCO) supports IRS employees with Human Resource topics. HCO reported a 28% reduction. Information Technology (IT) supports IRS employees by delivering IT services and solutions. IT reported a 25% reduction. Tax Exempt & Government Entities (TE/GE) helps taxpayers with pension plans, exempt organizations, and government entities comply with tax laws. TE/GE reported a 25% reduction. Taxpayer Services (TS) helps taxpayers understand and comply with tax laws. TS reported a 20% reduction. Large Business and International (LB&I) helps corporations and partnerships with assets greater than $10 million to comply with tax laws, including emerging international issues. LB&I reported a 19% reduction. Geographical Impact Every state, including the District of Columbia and Puerto Rico, has been impacted by the reductions. To date, TIGTA reports that California, Georgia, New York, Texas, and Utah have the highest numbers of anticipated employee separations. Delaware, Idaho, Iowa, Maine, and Mississippi have the highest percentage of anticipated employee separations compared to the IRS workforce in those states. Hiring Freeze In addition to mandatory reductions, IRS employee levels will also be impacted by attrition, including those employees opting for retirement. Importantly, they will not be replaced. As part of his January 20 executive order, Trump issued a hiring freeze that was intended to be temporary, with one exception—the IRS. While the freeze was slated to expire for other federal government agencies after 90 days, the hiring freeze for the IRS will remain in place until "it is in the national interest to lift the freeze." In her recent report to Congress, the National Taxpayer Advocate recommended that the hiring freeze be lifted so that the IRS can hire essential filing season staff to meet taxpayer needs next year. This needs to happen by the end of summer, she says, to allow time for onboarding and training by January. That will be particularly important following recent changes in the tax law, thanks to the One Big Beautiful Bill Act, including new, temporary deductions for seniors, tipped workers, employees who work overtime, and taxpayers who buy new cars. In addition to getting its employees up to speed on those issues, IRS has been tasked with issuing guidance, including new withholding tables. It's also likely the case that Forms W-2 and 1040 will need a redesign—and IRS systems will have to follow suit. Getting all of that together before the filing season, especially with a reduced workforce, will be a challenge. A successful filing season, Collins wrote in her report, 'is not only an IRS imperative but also a national one.' About TIGTA TIGTA was established in January 1999 by the IRS Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities. Today, TIGTA provides audit, investigative, and evaluation services to promote integrity, efficiency, and economy in the administration of the nation's tax system. While TIGTA sits organizationally within the Department of the Treasury and reports to the Secretary of the Treasury and to Congress, the agency is considered to be independent. Forbes Under Trump, IRS Has Shed More Than 11% Of Its Workforce. More Cuts Are On The Way By Kelly Phillips Erb Forbes Taxpayer Advocate Calls 2025 Filing Season A Success But Waves Warning Flag On Cuts By Kelly Phillips Erb Forbes What The One Big Beautiful Bill Act Will Mean For You And Your Business By Kelly Phillips Erb Forbes IRS Issues Guidance On New Deductions For Seniors, Tips, Overtime And Car Interest By Kelly Phillips Erb

Trump floats 'no tax on capital gains' for home sales. Here's who could benefit
Trump floats 'no tax on capital gains' for home sales. Here's who could benefit

CNBC

time13 hours ago

  • CNBC

Trump floats 'no tax on capital gains' for home sales. Here's who could benefit

President Donald Trump on Tuesday said the administration is considering ending capital gains taxes on home sales to boost the housing market. When asked about the idea in the Oval Office on Tuesday, Trump told reporters, "we're thinking about that." "If the Fed would lower the [interest] rates, we wouldn't even have to do that," he said. "But we are thinking about no tax on capital gains on houses." Under current law, home sellers can face capital gains taxes once profits exceed $250,000 for single filers or $500,000 for married couples filing jointly. More from Personal Finance:Trump's 'big beautiful bill' created a new student loan plan: What to knowAffordable Care Act health plan enrollees could face 'subsidy cliff' in 2026Trump's 'big beautiful bill' includes these 2025 tax changes Trump's comments come roughly two weeks after Rep. Marjorie Taylor Greene, R-Ga., introduced the No Tax on Home Sales Actto eliminate capital gains taxes on primary home sales. "Homeowners who have lived in their homes for decades, especially seniors in places where values have surged, shouldn't be forced to stay put because of an IRS penalty," she said in a statement. "My bill unlocks that equity, helps fix the housing shortage, and supports long-term financial security for American families." However, the proposal could be costly, and it's unclear whether the measure has broad Congressional support, experts say. "I think this could generate some interest, but they're more likely to raise the exemption than they are to eliminate the tax entirely," Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, told CNBC. Enacted in 1997, the $250,000 and $500,000 capital gains exclusions — which apply to primary home sales — have never been indexed for inflation. Since 1997, the median home sales price has climbed by nearly 190%, from about $145,000 to roughly $417,000, as of the first quarter of 2025, according to Federal Reserve data. As home values rise, certain individuals, such as long-time homeowners, are more likely to exceed the $250,000 and $500,000 thresholds, which could trigger capital gains taxes, experts say. When home sales profits exceed $250,000 or $500,000, capital gains are levied at 0%, 15% or 20%, depending on taxable income. Excess profit above those thresholds can also trigger the so-called net investment income tax of 3.8%, depending on other investment earnings, according to the IRS. Some 29 million homeowners (34%) could exceed the $250,000 threshold for single filers, and 8 million (10%) could be above the $500,000 limit for married couples filing jointly, according to a 2025 study from the National Association of Realtors, or NAR. The organization has long advocated for capital gains reform for home sales. Homeowners in states like Washington, California, Utah and Massachusetts are more likely to be impacted, according to NAR data. However, many homeowners don't realize it's possible to reduce your home sales profit by adding so-called "capital improvements," such as home renovations to the original purchase price, experts say. If capital gains taxes for home sales were eliminated, the measure would primarily benefit sellers who are older and wealthier, according to an analysis released Tuesday from The Budget Lab at Yale University.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store