Key Takeaways:
- The generous lifetime gift and estate tax exemption makes now an opportune time to transfer wealth.
- Trusts can offer ways to retain control, provide for family members, and address tax exposure.
- Delaying creating or updating estate plans can lead to outcomes that don't reflect your wishes or family circumstances.
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For individuals and families with substantial assets, estate and trust planning can help manage risk, maintain control and safeguard wealth across generations.
People often delay taking action until after a major life event. Delaying can mean missing out on valuable opportunities to structure your affairs efficiently.
Let's look at five proactive estate and trust planning approaches that support long-term goals and address tax exposure, family dynamics, and philanthropic intent.
1. Transfer Wealth Thoughtfully with Lifetime Gifting Strategies
The current lifetime gift and estate tax exemption is historically high, set at $13.99 million per individual or $27.98 million for married couples in 2025.
There is talk in Washington about increasing the exemption or eliminating the estate tax entirely. However, while it remains, gifting allows you to transfer wealth out of your estate, potentially bringing the value of your estate below the lifetime exemption threshold.
For example, you can make direct gifts to family members up to the annual exclusion amount ($19,000 per recipient in 2025) without using any of your lifetime exemption. To be even more generous, consider paying medical expenses or tuition on behalf of the recipient. Payments made directly to the institution don't count toward your annual gift limit or your lifetime exemption.
2. Use Trusts to Balance Control and Flexibility
Trusts are valuable tools for high-net-worth families seeking to preserve control and protect their assets. When carefully designed and managed, they can even help address complex family dynamics and future risks — such as loss of wealth due to divorce, creditor claims, or poor financial decisions by heirs.
Intentionally Defective Grantor Trust (IDGT)
One strategy to consider is transferring assets to an IDGT. This type of trust is disregarded for income tax purposes. You pay tax on any income generated by the assets in the IDGT, thereby allowing the trust to grow without the burden of paying income taxes (since it is paid by the donor and not subject to gift taxes).
Transferring minority interests in real property or businesses allows you to reduce the reportable gift by a minority discount. However, it's crucial to discuss this strategy with a tax advisor to ensure the tax law has not been modified to restrict the benefits of this type of entity.
You retain certain powers, such as the ability to swap assets in and out of the trust in exchange for other assets of equal value.
For estate and gift tax purposes, the assets transferred to the IDGT are removed from your estate. However, the ability to substitute assets from the IDGT provides flexibility if you're unsure of which assets to gift initially or if your estate plans change in the future.
Charitable Remainder Trusts (CRTs)
Another trust strategy is CRTs. By establishing a CRT before a major sale, the trust provides an income stream to you as the donor and a future benefit to your kids or a charitable organization, while potentially generating current tax deductions.
3. Tax Planning for Investments
The structure of your investments has estate planning implications.
If you have concentrated stock positions, exchange funds allow you to substitute or replace your shares in exchange for a pooled investment vehicle structured as a partnership. Since you don't sell the securities, you don't trigger capital gains at the time of exchange. When structured correctly, you can convert a single security into a diversified portfolio that mimics the risk profile of a broad-based stock index.
Municipal bonds and U.S. Treasury bonds are other options for tax-efficient investing. The interest earned on municipal bonds is generally excluded from gross income for federal income tax purposes. Additionally, the income may be exempt from state and local taxes if you're a resident of the state where the bond was issued.
The income earned on Treasury bonds is subject to federal taxes but is exempt from state and local taxes.
4. Tax Strategies for Philanthropic Giving
Philanthropy plays a central role in many estate plans. Some strategies to discuss with your tax and financial advisors include:
Donor-Advised Funds (DAFs)
A DAF is an investment account set up for the sole purpose of supporting charitable organizations. It provides an immediate charitable deduction, but you have the flexibility to distribute funds to charities over time. While you decide which charities to support, your donation can potentially grow.
Ideally, you would contribute long-term appreciated assets (not cash) to the DAF so the unrealized gain on the asset avoids taxation, and you receive an income tax deduction equal to the fair market value of the donated securities.
You can establish a DAF at most brokerage firms.
Charitable Gifting Before a Liquidity Event
Donating appreciated assets to a qualifying charity may allow you to avoid capital gains tax on the sale of a privately held business.
For example, say you're preparing to sell your interest in a business, which will result in a capital gain. Before the sale, you might consider making a donation to your own private foundation or a public charity, charitable remainder trust, or a DAF to lower your taxable income below the threshold required to qualify for a 0% or 15% capital gains tax rate. This strategy potentially avoids capital gains on the appreciated assets donated, reduces the tax impact of selling the business, and yields a charitable deduction.
Again, these are complex transactions. It's crucial to work with a tax advisor who specializes in guiding you through these tax-saving opportunities.
5. Avoid Common Pitfalls in Estate Planning
Despite the importance of estate planning and the potential advantages, it's easy to procrastinate when it comes to actually getting your affairs in order. But delaying or ignoring these decisions can lead to costly consequences.
Here are some of the issues we see arise frequently:
- Outdated documents: If you created your estate plan when your children were minors, it may no longer reflect the appropriate structures once they reach adulthood. Life changes like marriage, divorce, or disability can dramatically affect your intended outcomes.
- "DIY" or online estate plans: It's tempting to try to avoid attorney fees by drafting a will and other estate planning documents on your own or with the help of online tools. However, incomplete or inaccurate estate planning documents can cause complications after death. Instead, work with an attorney who is familiar with the laws in your state. Many offer free initial consultations and charge a flat fee for drafting basic estate planning documents.
- Lack of prenuptial agreements: According to a Harris Poll survey conducted by Axios, only about one in five married couples have a prenuptial agreement. While not as common in first marriages, a prenuptial agreement is an essential estate planning tool for second (and subsequent) marriages. Without one, wealth may be unintentionally diverted away from children in blended family situations.
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How MGO Can Help
Thoughtful estate and trust planning is an act of good stewardship. However, timing matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
