How High-Net-Worth Individuals Can Minimize Estate Taxes (How To)

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High-net-worth individuals face significant challenges in minimizing estate taxes, which can greatly impact the wealth passed on to heirs. This blog post outlines effective strategies for estate planning, including the use of trusts and gifting methods, to help protect your legacy. Consult an attorney near you to ensure your estate plan is tailored to your financial goals and family needs.

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Discover effective strategies for high-net-worth individuals to minimize estate taxes and protect wealth across generations. Learn about trusts, gifting methods, and the importance of estate planning, and find a trusted estate planning attorney near you to help you navigate the complexities of tax-efficient wealth transfer.

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Advanced Estate Planning Strategies for High-Net-Worth Individuals (Thought Leadership)

How High-Net-Worth Individuals Can Minimize Estate Taxes (How To)

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Mar 27, 2025 11:49 PM

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How High-Net-Worth Individuals Can Minimize Estate Taxes

For high-net-worth individuals (HNWIs), estate taxes can significantly reduce the wealth passed down to heirs. With the federal estate tax rate reaching up to 40% and some states imposing their own estate or inheritance taxes, strategic estate planning is essential to protect your assets and ensure your loved ones receive their full inheritance.

Fortunately, there are proven legal strategies to minimize estate taxes, avoid probate, and preserve wealth across generations. Here’s how you can structure your estate to reduce tax liabilities and maximize the legacy you leave behind.

💡 For every post in this series, scroll down to “Related Posts.”

1. Understand Federal and State Estate Taxes

Federal Estate Tax

As of 2024, the federal estate tax exemption is $13.61 million per individual, or $27.22 million for married couples. Estates valued above these thresholds are taxed at a rate of 40 percent.

This exemption is scheduled to decrease in 2026, likely returning to approximately $5 to $6 million per person. This looming change makes estate tax planning even more critical for affluent individuals and families.

State Estate and Inheritance Taxes

Twelve states plus Washington, D.C. impose an estate tax, with rates reaching up to 20 percent. Additionally, six states impose an inheritance tax, which is paid by beneficiaries.

Some states also have lower exemption thresholds than the federal level, meaning you could owe state taxes even if you avoid federal estate tax.

If your net worth exceeds $5 million, you should start planning now to reduce future tax burdens.

2. Use the Marital Deduction and Portability

Unlimited Marital Deduction

You can transfer an unlimited amount of assets to your spouse without incurring estate taxes. This defers estate tax until your spouse passes away.

Portability of Exemptions

Portability allows a surviving spouse to inherit the unused federal estate tax exemption of their deceased spouse, effectively doubling the tax-free amount a couple can pass on to their heirs.

To take advantage of this, an estate tax return must be filed within nine months of the first spouse’s death.

Portability helps couples maximize their exemption and delay taxation until the second spouse's passing.

3. Establish Irrevocable Trusts for Tax Efficiency

Irrevocable Life Insurance Trust (ILIT)

This type of trust removes life insurance proceeds from your taxable estate, ensuring tax-free payouts to your beneficiaries and avoiding estate tax on death benefits.

Grantor Retained Annuity Trust (GRAT)

A GRAT allows you to transfer appreciating assets to heirs at a reduced tax cost. You receive fixed annuity payments for a set term, and the remaining assets transfer to your beneficiaries with little or no estate tax. GRATs work especially well when interest rates are low and asset growth potential is high.

Charitable Remainder Trust (CRT)

A CRT provides income to you or your beneficiaries for a set term before transferring the remaining assets to a charity. This strategy reduces estate taxes, offers income tax deductions, and removes assets from your taxable estate.

Trusts are highly effective tools to shield assets from estate taxes, streamline wealth transfer, and reduce legal challenges.

4. Make Strategic Gifts to Reduce Estate Size

Annual Gift Tax Exclusion

In 2024, individuals can give up to $18,000 per recipient per year ($36,000 for couples) without paying gift tax. This strategy allows gradual reduction of your estate's taxable value.

Lifetime Gift Tax Exemption

You can gift up to $13.61 million during your lifetime without incurring gift tax. Gifts beyond this limit reduce your federal estate tax exemption.

Direct Payments for Education and Medical Expenses

Tuition and medical expenses paid directly to institutions are not subject to gift tax limits. This allows you to support loved ones without increasing your estate tax exposure.

Combining annual gifts, direct payments, and strategic use of trusts is an effective way to reduce estate tax liability over time.

5. Take Advantage of Family Limited Partnerships (FLPs)

An FLP allows you to transfer assets to family members at a discounted valuation for tax purposes. You maintain control over the partnership while transferring ownership to heirs.

FLPs offer asset protection from creditors and legal claims. The IRS allows valuation discounts for transferred business interests, further reducing taxable value.

6. Move to a Low-Tax State

Several states impose estate or inheritance taxes, but others have eliminated them entirely. States with no estate or inheritance tax include:

Florida

Texas

Nevada

Alaska

South Dakota

If you own property in multiple states, consider establishing residency in a low-tax state to reduce your estate's future tax exposure.

7. Use Dynasty Trusts for Multi-Generational Wealth Transfer

A dynasty trust enables wealth to pass down through multiple generations without being subject to estate tax at each generational transfer.

Assets in the trust grow tax-free and remain protected from creditors, divorces, and lawsuits. Dynasty trusts are especially effective in states that have repealed the Rule Against Perpetuities, allowing trusts to last indefinitely.

High-net-worth families seeking long-term wealth preservation should consider this strategy.

8. Convert Traditional IRAs to Roth IRAs

Traditional IRAs are subject to both estate and income taxes upon the account holder’s death. Converting these accounts to Roth IRAs eliminates income tax for your beneficiaries and reduces the taxable portion of your estate.

It is best to convert during low-income years to minimize the tax burden of the conversion.

Final Thoughts: Take Action Now

Estate taxes can diminish generational wealth, but smart planning can reduce or eliminate these costs. By combining gifting strategies, advanced trust structures, relocation planning, and tax-efficient investment conversions, you can protect your legacy and ensure more of your wealth is passed on to your loved ones.

Key strategies to consider include:

Using irrevocable trusts such as ILITs, GRATs, and CRTs to remove assets from your estate.

Taking full advantage of annual gift exclusions and lifetime gifting exemptions.

Establishing FLPs to transfer wealth at a discounted value.

Domiciling in a tax-friendly state to reduce state-level tax exposure.

Using Roth conversions to eliminate income taxes on inherited retirement accounts.

High-net-worth individuals require custom estate planning solutions tailored to their financial goals, family dynamics, and future tax environments.

Ready to build a tax-efficient estate plan? Find a trusted estate planning attorney near you through ReferU.AI and take the next step in protecting your wealth and your family’s future.

How High-Net-Worth Individuals Can Minimize Estate Taxes (How To)

How High-Net-Worth Individuals Can Minimize Estate Taxes