Raleigh Estate Tax Planning Attorney

Common Estate Tax Planning Strategies

Put simply, estate tax planning involves reducing the size of your taxable estate. This generally involves strategically transferring assets during life or structuring ownership, often through trusts. 

Some of the most common estate tax planning strategies include:

• Strategic gifting. One of the most straightforward ways to reduce the size of your taxable estate is by making gifts during your lifetime. The IRS allows an annual gift tax exclusion, which for 2025 is $19,000 per recipient. You can give this amount to as many individuals as you wish each year without incurring gift tax or using up any of your lifetime gift tax exemption. This strategy effectively removes assets and any future appreciation on those assets from your estate. 
• Charitable trusts. By transferring assets into an irrevocable charitable trust, you can both remove the value of those assets from your taxable estate while also working to achieve your philanthropic goals. 
• Irrevocable life insurance trusts (ILITs). Life insurance proceeds are typically included in the insured's estate for estate tax purposes if the insured owns the policy. An ILIT is an irrevocable trust specifically designed to own a life insurance policy. When the ILIT owns the policy, the death benefit proceeds are paid directly to the trust and are excluded from the insured's taxable estate. This provides liquidity to pay estate taxes or other expenses without increasing the estate tax liability. Trustors can make gifts to the ILIT to cover premium payments.
• Grantor retained annuity trusts (GRATs). A GRAT is an irrevocable trust to which you transfer appreciating assets (like stocks, real estate, or business interests) for a specified term of years. In return, the trustor (also known as the grantor) receives an annuity payment back from the trust for the term. If the assets in the GRAT appreciate at a rate higher than the IRS's assumed interest rate (known as the Section 7520 rate), the excess appreciation passes to the beneficiaries (such as children or grandchildren) at the end of the trust term, free of gift or estate taxes. This "growth outside the estate" is the primary benefit, making GRATs effective for assets expected to grow significantly.
• Qualified personal residence trusts (QPRTs). A QPRT is an irrevocable trust used to transfer a personal residence or vacation home to beneficiaries with reduced gift and estate tax consequences. The trustor transfers their home to the QPRT for a set number of years and retains the right to live in the home for that term. Because the trustor retains an interest, the taxable gift value of the home is significantly discounted for gift tax purposes. If the trustor survives the trust term, the home passes to the beneficiaries, and its value, including any appreciation, is removed from the trustor's taxable estate. After the term, the trustor can continue living in the home by paying fair market rent to the new owners (the beneficiaries).
• Intentionally defective grantor trusts (IDGTs). An IDGT is an irrevocable trust designed to be "defective" for income tax purposes (meaning the trustor is still responsible for the trust's income taxes) but “effective” for estate tax purposes (meaning the assets are removed from the trustor's taxable estate). This allows the trustor to pay the income taxes on the trust's earnings, which further reduces their own estate without incurring an additional gift to the beneficiaries. Often, the trustor sells appreciating assets to the IDGT in exchange for a promissory note, allowing future appreciation on those assets to pass to the beneficiaries free of estate tax, while the note repayments are not subject to gift tax.