Estate Tax & Gifting Strategies for High-Net-Worth Clients

Over the holidays, I spent a lot of time in the backyard of a new-to-us house watching the day unfold with a campfire burning to ward off the chill. Standing with family, the pine trees, and a hyperactive hound, I found I still had one foot in the office because estate planning was on my mind. I could only imagine what the property looked like when it was first built, almost twenty years ago. As a Florida transplant who now lives and works in Durham, NC, any memory I could conjure from that time would have more palm trees than pine trees, but I think the saying is true regardless – “The best time to plant a tree is twenty years ago. The second time is now.”

Estate planning is about more than drafting a will – it is a proactive way to care for your loved ones and support your favorite causes, and it can help ensure that your values will be a part of your legacy. When you have assets or net worth greater than the federal estate tax exemption, your estate and gifts can be subject to taxation, reducing the amount left for your heirs. The exemption amount is $13,990,000 per person in 2025 and is projected to be half as much in 2026 and beyond. Estates with total assets worth under this amount should not worry about estate and gift taxes due to the Unified Credit, which offsets any tax liability until your estate or the sum of your gifts during your lifetime reaches the cutoff.

There are multiple strategies to reduce the size of your estate while you are alive, before estate taxes are calculated, and without triggering gift taxes. Each strategy is another way of giving away money to another person, or to a charity with specific conditions, and typically multiple strategies are used. From simple gifting strategies to advanced trusts, there are many tools in estate planning that can help you reduce taxes and transfer wealth efficiently from one spouse to another or from one generation to the next.

This is undoubtedly a very complex subject, and today’s blog post is focused on individuals and couples with taxable estates, but many of the strategies I will outline below can be used even if your estate is not taxable. So these are useful tools to be aware of for anyone who is interested in giving money to children or grandchildren).

Remember, it is always important to work with the appropriate professionals (investment, insurance, legal, tax, etc.) when estate planning.

Instead of giving an outright gift, consider using Uniform Transfers to Minors Act (UTMA) brokerage accounts, which allow you to control and invest the funds on behalf of the minor until they are 18 or 21. There are no limitations on how these funds can be spent, unlike a 529 education plan, and the funds can be invested outside your estate. The gifts can be cash, securities (like stocks and mutual funds), or other property.

Now that you know about the Annual Exclusion, you should know that there are certain types of gifts that are not subject to the annual exclusion limits and still do not impact your estate tax exemption. These include:

1. Paying Tuition Directly: You can pay another person’s tuition – for any level of education – directly to the institution. There is no cap on this type of gift, and it does not count against your gift tax exemption.

2. Covering Medical Expenses: Similarly, you can pay for someone’s medical expenses directly to the provider or insurer. This includes hospital bills, prescription costs, and long-term care, provided they meet IRS qualifications for medical expenses.

Using these types of gifts allows you to further assist loved ones (or even a complete stranger if you are extra nice) without the negative estate/gift tax impact that would occur if you were to give more than the annual exclusion directly.

You can “superfund” 529 plans by front-loading five years of annual gifts at once – up to $95,000 for individuals or $190,000 for couples in 2025. Superfunding does impact your ability to use the annual exclusion: for example, if you give the maximum five-years worth in one year, you cannot give to the same recipient for five years without reporting the gift and impacting your estate tax exemption. Because of this, we feel that superfunding is a strategy best used as early as possible to maximize the tax-free potential.

Home prices have historically appreciated, and for a taxable estate that can cause a problem. Placing your home in a QPRT means you retain the right to live there for a specified term (and could subsequently rent the home from the trust thereafter). Both the initial gift and the subsequent rent payments reduce your taxable estate and locks in the property’s current value for estate tax purposes. QPRTs can be used on primary homes and vacation properties (up to two per individual and four per married couple).

If your taxable estate is a result of your retirement assets, like 401(k) plan assets or Individual Retirement Accounts (IRAs), you will need to approach the problem a bit differently. There are two tools you should be aware of: QCDs while you are living and CRUTs for when you pass away.

Qualified Charitable Distributions (QCDs) are a valuable tool for individuals aged 70½ or older who want to support charities while meeting their financial goals. A QCD allows you to donate up to $108,000 annually directly from your IRA to a qualified charity or non-profit organization. These distributions can satisfy part or all your required minimum distribution (RMD) without being included in your taxable income, making them a tax-efficient way to give. Whether you are tithing to a religious organization or supporting your favorite nonprofit, QCDs help you reduce your taxable estate, lower your income tax liability, and leave a meaningful legacy. Families often use this strategy to align their giving with their values while potentially easing the tax burden for future generations.

Charitable Remainder Trusts (CRTs) can be listed as the beneficiary to your 401(k) plan or IRA. Leaving retirement funds to a Charitable Remainder Trust will provide income to your survivor for a set term, with the remainder going to charity. This strategy reduces estate taxes. Like CGAs, CRTs provide an income stream, but they also can provide some additional investment flexibility and an increasing income stream. Some retirees prefer this so their heirs can better offset the cost of inflation.