Estate planning has many aspects that individuals need to realize. Estate planning addresses the desires of the family to equalize inheritance between children, arrange programs for a special needs child as well as provide for federal and state taxes as well as estate settlement cost.
Under the “American Taxpayer Relief Act of 2012” effective January 1, 2026 the Estate Tax Exclusion Amount has been established at $15,000,000 per individual ($30,000,000 per couple) to be indexed for inflation from 2011. The Top Marginal Estate Tax rate has been set at 40% Generation Skipping Transfer Tax and Gift Transfer Tax are also subject to the new Estate Tax Exclusions and Marginal Tax Rate.
Annual Gift Exclusion for 2025 has been increased to $19,000 per individual ($38,000 per couple).
Aside from the federal estate consideration there is state death or inheritance tax, income taxes and non-tax consideration that the family should consider.
Estate Analysis & Evaluation
During estate analysis and evaluation it is important to determine how assets are owned and if the estate will be transferred according to the owner(s) wishes.
Settlement Cost Calculation
Settlement cost calculations include state inheritance tax, income tax, probate cost as well as federal estate taxes. These costs are calculated in conjunction with the complete estate transfer planning.
Funding Alternatives
When considering how to pay the cost associated with transferring estate assets to the next generation, it is important to decide the best way to pay these costs. They can be paid with 100% dollars (cash in the bank), 100% plus dollars (borrowing with interest, sale of assets), or with discounted dollars on installments.
Charitable Giving
Charitable giving of assets under today’s estate laws are deducted from the total estate for federal estate taxes purposes (also in most states) and can be a method of reducing the estate transfer cost and in some instances qualify for transfer within the federal estate tax credit. The family has estate planning tools available that could be used to replace or represent the charitable gift if they choose in order not to disinherit the heirs.
Charitable Remainder Trust
Using a charitable remainder trust provides the estate owner with the income from the asset intended to be given to the charity. This income can be received by the estate owner(s) or who they designate, with the remainder of the asset at the death of the estate owner going to the charity. There are many tax planning (income and estate) options under this arrangement that could discuss.
Family Limited partnership
The family limited partner (FLP) method is use to centralize and identify the assets and how they are (should be) owned. It also allows the estate owner(s) to retain control of their assets even though they institute a gift giving program (family, charity, etc).
Dynasty Trust
The dynasty trust is designed to hold assets that will continue to benefit the families of future generations. These trusts usually have members of the family on the board of trustees and are managed to generate income and growth. These trusts are created by estate owner(s) with little resources as well as those of means.
Irrevocable Life Insurance Trust
By utilizing an Irrevocable Life Insurance Trust, life insurance is received by named beneficiaries outside the estate and is not exposed to reduction by federal estate taxes and other costs associated with transferring assets from one generation to the next, additionally provide the cash necessary to pay the transfer costs. There are many additional uses for life insurance in estate and family planning.
