What are the primary estate tax minimization strategies for high-net-worth clients?

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AcadiFi · Accepted Answer

Federal estate tax applies at 40% to estates above the 2026 exemption of $13.99M per individual / $27.98M per couple, scheduled to halve after 2025 absent legislation. High-net-worth estate tax planning uses seven core tools: (1) Annual exclusion gifts: $18,000 per recipient per donor in 2025, $19,000 in 2026. Philomena and her husband Ansel gift $38k per year to each of three children and six grandchildren = $342k annually out of their estate with no gift tax consequence. (2) Lifetime exemption gifting: use the full $13.99M exemption while available. Funding an irrevocable trust with appreciating assets moves future growth outside the estate. (3) GRAT (Grantor Retained Annuity Trust): grantor contributes assets and retains annuity payments. If assets outperform the Section 7520 rate (5.2% April 2026), excess passes to beneficiaries gift-tax-free. Short-term 'rolling' GRATs with volatile assets are a classic strategy. (4) SLAT (Spousal Lifetime Access Trust): irrevocable trust with other spouse as beneficiary, preserving indirect access while removing assets from the taxable estate. (5) ILIT (Irrevocable Life Insurance Trust): holds life insurance outside the estate. $5M policy inside ILIT saves $2M in federal estate tax. Crummey letters maintain annual exclusion treatment for premium gifts. (6) Charitable strategies: CRT (Charitable Remainder Trust) converts appreciated assets to income stream plus charitable deduction; CLT (Charitable Lead Trust) pays charity first then returns residue to heirs; qualified charitable distributions (QCD) from IRA age 70.5+. (7) Valuation discounts: FLP (Family Limited Partnership) and LLC structures create minority-interest and lack-of-marketability discounts of 25-40% on gifted interests. ```mermaid flowchart TD A[$28M Estate] --> B[Annual Gifts
$342k/yr] A --> C[Lifetime
Exemption Use] A --> D[GRATs for
Volatile Assets] A --> E[ILIT for
Life Insurance] A --> F[Valuation
Discounts] B --> G[Reduced
Taxable Estate] C --> G D --> G E --> G F --> G ``` For Philomena and Ansel, a combined strategy of $342k annual gifts, $20M SLAT funding in 2025 before exemption sunset, a $10M ILIT, and 30% FLP discount could reduce projected estate tax from $5.6M to under $500k. CFA Level III candidates must coordinate estate planning with income tax, investment policy, and family governance.

What are the primary estate tax minimization strategies for high-net-worth clients?

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