By | May 9, 2025
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How To Avoid Estate Tax

Avoiding or minimizing estate tax involves strategic planning to reduce the taxable value of your estate. While you can’t evade taxes illegally, you can legally structure your estate to take advantage of exemptions and deductions. Here’s how:

1. Stay Below the Estate Tax Exemption Limit

  • As of 2024, the federal estate tax exemption is $13.61 million per individual (or $27.22 million for married couples).
  • If your estate is under this threshold, no federal estate tax applies.
  • Some states have much lower exemptions and their own estate or inheritance taxes—check your state’s laws.

2. Use the Marital Deduction

  • Assets left to a U.S. citizen spouse are generally not taxed due to the unlimited marital deduction.
  • Use this to defer taxes until the second spouse dies, then apply proper planning to limit tax on the remainder.

3. Make Lifetime Gifts

  • Use the annual gift tax exclusion ($18,000 per recipient in 2024) to gradually reduce your estate tax-free.
  • Consider lifetime gifts beyond the annual exclusion—these count against your lifetime exemption but can shift appreciating assets out of your estate.

4. Set Up Trusts

  • Irrevocable Life Insurance Trusts (ILITs): Keep life insurance proceeds out of your estate.
  • Grantor Retained Annuity Trusts (GRATs): Transfer appreciating assets at reduced tax cost.
  • Charitable Remainder Trusts (CRTs): Reduce estate size while supporting charities and generating income.
  • Qualified Personal Residence Trusts (QPRTs): Transfer a home at a reduced gift value.

5. Use Portability (for Married Couples)

  • If one spouse dies without using their full exemption, the survivor can elect portability to carry over the unused portion—file IRS Form 706 within 9 months of death.

6. Make Charitable Donations

  • Donations to qualified charities reduce the value of your taxable estate.
  • You can give directly or use charitable trusts or foundations.

7. Spend It

  • Using your wealth during your lifetime—on experiences, family support, or investments—can reduce your taxable estate while benefiting your heirs now.

8. Work With Estate Planning Professionals

  • An estate attorney, financial planner, and tax advisor can help you build a customized, legally sound plan that protects your wealth and minimizes tax exposure.