3 Strategies to Ease Your Estate Tax Burden

Professional Advisor Insights

Brought to you by W. Gary Stemple in conjunction with Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. This article is part of the Professional Advisor Insights series.


One of the great joys of building wealth is the knowledge that your heirs may benefit for generations. But without proper planning during your lifetime, the federal government could tax as much as 40 percent of your estate upon death.

There are strategies to lessen the burden, and putting them to use now will help ensure more of your assets will get to your heirs rather than be used to pay estate taxes.

To help you create a will and an estate plan that enhances growth and helps reduce estate taxes, begin by putting a team of professionals together. That team should include an accountant, a lawyer and a financial advisor.

Give the Family a Gift

One of the easiest ways to begin transferring wealth to the next generation is to enhance what the IRS calls the annual exclusion gift. In 2017, the IRS lets individuals give up to $14,000 a year to whomever they like without paying gift taxes. The annual gift exclusion means you can begin channeling your assets to your heirs tax free while lessening the value of the estate that may, upon death, be subject to taxation.

Without proper planning during your lifetime, the federal government could tax as much as 40 percent of your estate upon death.

One use of this gift exclusion is a 529 Plan. For the benefit of funding an IRC Section 529 plan, you are allowed to currently use your annual exclusion gift for the next five years. Individuals can make a gift to one individual of $70,000 without paying gift taxes that year, but give up their right to make an additional gift for the following five years.

Taking five years at once might be a good option for funding a beneficiary’s 529 college savings plan, which lets account holders put money into an investment account that has tax-free growth potential as long as the proceeds are used to pay for qualified education expenses.

Giving heirs the maximum amount allowed under the annual exclusion gift may not have a deep impact on those with large estates. It does, however, have the benefit of not counting against the federal government’s lifetime giving credit, which lets people gift their heirs up to $5.49 million.

Give a Gift to Charity

Used effectively, charitable trusts can ease the estate tax burden while also benefiting a worthy cause. Two variations on the charitable trust include the Charitable Lead Trust and the Charitable Remainder Trust.

Used effectively, charitable trusts can ease the estate tax burden while also benefiting a worthy cause.

With a Charitable Lead Trust, a donor funds a trust in which assets grow tax free while making scheduled annual payments to whatever charities the donor chooses. Once the gift is completed, the remaining assets go to whomever the donor designated – usually family members, either as a gift or put into a trust for their benefit. The donor may qualify for a gift, income, and/or estate tax charitable deduction which makes it a great testamentary gift.

With a Charitable Remainder Trust (CRT), the donor funds the trust with appreciated assets and has an available income tax deduction. The CRT can sell the asset without recognition of capital gains and diversify upon the sale. The trust then provides income payments of at least 5% each year to the donor or another beneficiary, which are taxed either as capital gains or ordinary income, depending on the nature of the assets. When the term of the trust ends, the balance of the trust is then transferred to the philanthropic institution.

Put Your Life Insurance into a Trust

A Life Insurance Trust is a tool that further leverages the annual exclusion gift by shielding the life insurance proceeds from estate taxation. Generally, the trusts are formed to purchase a new life insurance policy. The policyholder then funds the trust with money or other assets to pay the premiums.

Officially, the trustee of the trust is both the policy holder and the beneficiary. Once you pass on, the trustee makes distributions according to your wishes as established within the trust document. If the trust is properly drafted, those distributions aren’t counted as part of your estate, and are therefore not subject to estate taxes. In addition, life insurance can also be set up to be owned by a charity which gets the life insurance out of the donor’s estate

One thing to keep in mind: Life Insurance Trusts are irrevocable, but with proper planning trust provisions can accommodate changes in the future.

*The content of this material was provided to you by Sagemark Consulting, a division of Lincoln Financial Advisors for its representatives and their clients. This article may be picked up by other publications under planner’s bylines.


About W. Gary Stemple

W. Gary StempleW. Gary Stemple CFP®, CLU®, CRPC® is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor,4250 Executive Square, Suite 700, La Jolla, CA 9203. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was created by Lincoln Financial Advisors for its representatives and their clients.

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