By Ted Stricker, CFP®
Most of us would agree that we likely pay more than we wish in various taxes over our lifetime.
While it’s clear that taxes help support the services provided by governments, allowing the IRS one last grab at our money before it goes to our loved ones (and causes we cherish) just seems, well, a bit unfair. And even though the federal estate tax exemption level may be high, don’t forget about state estate tax liability, such as for NY residents.
Estate taxes are a frequent topic at Bernath + Rosenberg, and we often have lengthy discussions with our clients about strategies to structure assets to minimize estate taxes and control how their legacy is passed on. Here are some of our best strategies to lower estate tax liability.
Use the Lifetime Gift Tax Exemption Wisely
Under current federal law, each of us is able to shelter $13.9 million of our estate from federal estate tax in 2025. Each of us is also allowed to give up to $19,000 to any other person this year without filing a gift tax return or notifying the IRS about this gift. It’s important to remember that this exemption may decrease to just $7 million in 2026 if Congress doesn’t act this year.
For many, these are considerable shelters from estate and gift taxes. For those whose net worth may exceed these thresholds, it’s important to be careful about using such exemptions. One simple example may be for married couples whose combined estate exceeds $14 million under current law or may exceed the exemption level in the future for the surviving spouse. Without proper estate planning, one of the two exemptions available to the couple may go unused, subjecting the second spouse’s estate to avoidable estate taxes, since their single exemption may not be enough to shelter the entire remaining estate value.
Leverage the Power of Trusts
In a prior blog post, we discussed the advantages of structuring trusts to mitigate estate tax liability. To review, in setting up a trust, you provide the ability to direct how your assets are handled after death and passed on as you wish. One effective trust technique to lower estate tax liability is through an “irrevocable trust.”
This type of trust shields the asset within from creditors and legal judgements. Properly structured, it is also completely separate from your own estate and is shielded from any claims against you. Any income within the trust is taxed separately and the growth within the trust remains outside your estate as well, benefiting the named beneficiaries (such as loved ones) you designate.
Transfer Appreciating Assets to Heirs Early
Moving ownership of assets that are expected to appreciate significantly over time to heirs can save considerable estate tax liability. A famous example involves the Walton family and its patriarch, Sam Walton, the founder of Walmart. Thinking ahead, Sam Walton divided ownership of his burgeoning company amongst his children and wife in a family partnership when the value of the shares was still modest (in the early 1950s). When Sam passed 40 years later, the value of Walmart had ballooned considerably, but by gifting the shares long ago, the appreciation of most of the gifted shares was outside his and his wife’s estate.
Even if you aren’t a Sam Walton, gifting assets, such as stock or shares in a business venture or family partnership, can be an effective strategy to move the eventual long-term appreciation outside your own estate and save tax liability later on.
Utilize Charitable Giving Strategies
Numerous techniques are available to those who wish to fulfill philanthropic intentions and save on potential income tax or estate tax liability at the same time. These include:
- Donor-Advised Funds (DAF): DAFs are special charitable accounts that receive donated assets from the account owner for eventual charitable bequests. The donation is tax-deductible in the year made and charitable intentions can be made at the discretion of the account owner.
- Qualified Charitable Distributions (QCD): QCDs are direct transfers from IRAs to charitable organizations. Those over 70½ may make up to $108,000 in direct distributions, and those over 73 years old may count their annual RMD. In this distribution, the charitable gift negates the taxable income. While heirs do not directly benefit from this technique, drawing down on an IRA may help stay under the lifetime exemption and not affect current income tax liability.
- Charitable Remainder Trusts (CRT): CRTs are specialized trusts that can provide annual distributions to you or your heirs in exchange for making a contribution to the trust. The contribution(s) are income tax-deductible for a part of the amount funded. Distributions vary depending on the type of CRT chosen. Once donated, the contribution value itself and any further growth within the CRT is excluded from your estate.
Review and Update Your Estate Plan Regularly
Laws change often and estate planning is one area where it’s smart to review and update your plan on a regular basis. As mentioned, current estate tax exemptions are due to “sunset” after 2025, so along with other tax legislation, Congress will likely be addressing estate tax laws sometime in 2025. In addition, life happens. Your priorities may change, families grow and change, and your charitable intentions may evolve as well. Periodic reviews with your financial planning and tax advisors are wise if you want to feel confident your plan maintains its tax-efficiency and effectiveness in meeting your legacy and life objectives.
We Can Help With an Estate and Tax Strategy to Meet Your Goals
Estate and tax planning is a core service we offer at Bernath + Rosenberg, and we’re here to help!
Our experienced team of Certified Public Accountants and CERTIFIED FINANCIAL PLANNER® professionals stays current with the latest in tax laws and planning strategies to help you pursue a rewarding and comfortable retirement, save on tax liability, and plan for your your family’s future according to your unique and special objectives. By coordinating your tax and financial planning with your long-term goals and values, we assist you in implementing the strategies discussed here (and more!) to benefit your financial future.
To get started and make the most of your hard work, schedule a meeting by calling (212) 221-1140 or email tstricker@brwealth.com.
About Ted
Ted Stricker is a partner and financial advisor at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 26 years of experience in the financial services industry, Ted manages the firm’s wealth management team, and specializes in designing financial plans for business owners and affluent families. Since joining the team in 2015, he provides practical and sound advice, combining innovative approaches and solutions that reflect clients’ personality, lifestyle, and goals.
For the ninth year in a row, Bernath + Rosenberg has been named as one of the leading CPA firms in financial planning by Accounting Today, a publication that receives hundreds of submissions each year and features the Top 150 Firms in the nation. Ted is a CERTIFIED FINANCIAL PLANNER® practitioner and is a member of the Financial Planning Association. To learn more about Ted, connect with him on LinkedIn.
Professionals associated with Bernath & Rosenberg P.C. may be either (1) registered representatives with, and securities and advisory services offered through LPL Financial, Member FINRA/SIPC, a registered investment advisor; or (2) solely tax professionals of Bernath & Rosenberg P.C., and not affiliated with LPL Financial. Tax/accounting/CPA-related services offered through Bernath & Rosenberg P.C. is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax/accounting/CPA-related services.
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