A major change is on the horizon for estate planning. The current increased estate tax exemption, set at $13.61 million per individual (or $27.22 million per couple), will revert to roughly half of that amount starting January 1, 2026.
If you're considering passing on your wealth or protecting your assets, now is the time to review your estate plan. This reduction in the exemption could have significant tax implications for estates over the new threshold. Here are a few strategies to maximize tax savings:
A SLAT is an irrevocable trust setup for the benefit of the Settlor’s spouse. By gifting assets into a SLAT, the Settlor moves those assets out of his or her taxable estate; however, since the Settlor’s Spouse is the primary beneficiary, distributions may be made to the Settlor’s Spouse at any time.
Life insurance has been a staple of estate planning strategies for many years, and the variety of insurance products available reflects it. When incorporated into an estate plan using an Irrevocable Life Insurance Trust (ILIT), life insurance provides liquidity and flexibility, all completely outside the transfer tax system.
Gifts to an IDGT move the assets out of the Settlor’s taxable estate; however, the Settlor is still responsible for paying any income tax on the gifted assets. Additionally, the Settlor may sell assets to the IDGT without recognizing gain from the sale, since, for income tax purposes, the Settlor is selling the assets to him or herself. This technique is often referred to as an “Estate Freeze” as the value of the assets are still included in the Settlor’s estate (via either a promissory note or the consideration paid); however, any future growth is now shifted outside the Settlor’s estate.
The Settlor of a QPRT may transfer either the Settlor’s primary residence or one other personal use residence into a QPRT, retaining the right to use the residence for a term of years and upon the end of the term, the right to use the residence is transferred to the remainder beneficiaries (often the Settlor’s spouse or children). The value of the gift is based on the Settlor’s age at the time of the gift and the length of the term; however, if the Settlor dies during the term of the QPRT, then the entire value is included in the Settlor’s taxable estate. The idea is to have as long a term as possible to reduce the gift as much as possible, but not so long that the Settlor is likely to die prior to the end of the term.
Similar to a QPRT, the GRAT is designed for the Settlor to retain an interest in the gifted property. In a GRAT, the Settlor transfers assets for a term of years, and each year, the GRAT distributes an annuity to the Settlor until the end of the term, at which point, the balance of the assets, if any, will transfer to the remainder beneficiaries (often the Settlor’s children). The value of the gift is equal to the value of the remainder interest (just like a QPRT) and depends on the IRC § 7520 interest rate at the time of the gift, the size of the annuity payment, and the term of years. It is possible to “Zero Out” a GRAT, resulting in a minimal gift ($100 or less), based on the annuity payments the GRAT is required to distribute.
For additional information or questions regarding estate and gift tax exclusions and generation-skipping transfer (GST) taxes, we urge you to contact the author of this article or a representative of Jones Foster here.
The information provided in this article does not, and is not intended to, constitute legal advice; it is for general informational purposes only. No reader of this article should act or refrain from acting on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction to ensure the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
Alex Parthemer, a member of Jones Foster’s Private Wealth, Wills, Trusts & Estates and Corporate & Tax teams, focuses his practice in the areas of estate planning, probate and trust administration, tax planning, business planning, and transactional corporate law.
Alex works with individual clients and families to develop personalized estate plans for asset protection and distribution while minimizing estate, gift, and generation-skipping transfer (GST) tax impact. He also has significant experience in preparing estate and gift tax returns, trust and estate income tax returns, as well as partnership income and individual income tax returns.
In addition, Alex’s background in complex tax planning uniquely positions him to represent business owners and family offices in a wide range of corporate matters, including corporation, LLC, and LP entity formation, mergers and acquisitions, buy-sell agreements, dissolutions, tax-free reorganizations, conversions, and annual filings. He has experience in guiding private foundations and public charities from the formation stage including the application for tax-exempt status (Form 1023) through name changes, director and/or trustee changes, administration issues, and related activities.
Alex is a member of The Florida Bar’s Tax Section and Real Property, Probate & Trust Law Section. He holds a Master of Laws degree (LL.M.) in Taxation from the Graduate Tax Program at the University of Florida.
Jones Foster is celebrating its Centennial year as a full-service commercial and private client law firm headquartered in West Palm Beach, Florida, with offices in Palm Beach and Jupiter. Tracing its roots back to 1924, the firm has served as an integral part of South Florida’s growth and prosperity. Through a relentless pursuit of excellence, Jones Foster delivers original legal solutions that help clients, colleagues, and the community to move forward. A significant number of attorneys have received the designation of Board-Certified Specialist by The Florida Bar in their specific practice area. The firm’s practice groups include Complex Litigation & Dispute Resolution; Corporate & Tax; Land Use & Governmental; Private Wealth, Wills, Trusts & Estates; Real Estate; and Trust & Estate Litigation. For more information, please visit www.jonesfoster.com.
