2025 brings in big news for estate planning. Since 2018, we’ve enjoyed generous estate tax exemptions, and they were set to expire at the end of next year. However, with the reelection of Trump and a Republican sweep of Congress, it’s quite likely that those high exemption limits will be extended, and it’s possible that the estate tax could even be repealed. However, just as we shouldn’t be overconfident with our investments, we should also not assume any repealments on the horizon and instead focus on creating clear-cut estate plans that reduce lifetime taxable income and help preserve your legacy for generations to come. And with 2025 bringing even higher exemption limits than 2024, there are plenty of ways to reduce our estate in smart and savvy manners.
The Unified Credit System
Before we discuss strategies, we should clarify that gift and estate taxes work as a unified system, sharing one single lifetime exemption. Essentially, it’s a single bucket with $13.61 million in it, with periodic adjustments for inflation. Every taxable gift you make during your lifetime reduces how much exemption you’ll have left to shield your estate from taxes when you pass. However, that doesn’t mean every transfer you make counts as a gift: direct payments to medical providers for healthcare expenses or directly to educational institutions for tuition are tax-free and don’t count against your annual or lifetime gift tax exclusions. However, they do preclude the ability to potentially generate gains in an irrevocable trust.
This brings us to a critical decision in estate planning: choosing between immediate benefits, like supporting a loved one’s education or healthcare, and long-term strategies that maximize the growth and preservation of your estate.
Maximizing Gift Tax Lifetime Exemptions
Imagine your estate is worth $20 million. You’ve used $10 million of your lifetime gift tax exemption, leaving $3.61 million shielded from federal estate taxes if you passed today. However, if you had never used your gift tax exemption, $13.61 million would be shielded instead, with the remainder taxed at a 40% estate tax rate.
At first glance, it might seem like gifting offers no advantage since the shielded amount remains $13.61 million either way. But here’s the key: gifting during your lifetime removes future appreciation of those assets from your estate, potentially saving millions in estate taxes. Additionally, gifting allows you to maximize annual exclusion gifts, provide for heirs during your lifetime, and reduce state-level estate taxes where applicable.
The figures in the image above are for educational and visual purposes only. Your results will vary. Always consult with a tax professional for advice.
Here’s how the math works out over 20 years: assuming a 10% annual growth rate, moving $13.61 million out of your estate today into an irrevocable trust could grow to $91.2 million for your heirs tax-free. Leave it in your estate? The same growth could hit $91.2 million but would likely be cut down to $54.7 million after the 40% estate tax. That’s nearly a $36.5 million difference from a single decision.
Now, let’s analyze the tools we can utilize to execute these transfers.
Gifting Strategies
Cash Gifts with Crummey Powers
In 2024, you can reduce your taxable estate by giving away $18,000 per recipient each year in cash gifts and then another $19,000 in 2025. However, once that money hits your beneficiary’s bank account, it’s theirs to spend. While you’ve technically accomplished the goal of reducing your estate, you’ve missed the opportunity for tax-free growth.
Now, if your goal is simply to reduce your taxable estate and you want your beneficiaries to enjoy a cash gift now, that’s fine. However, if long-term growth is your focus and the reduction of your estate is your goal, you need a trust structure where assets can be professionally managed and distributed according to specific terms. But there’s a catch. Annual exclusion gifts require “present interest,” meaning the beneficiary needs immediate access to the gift.
This is where Crummey powers come in – they give beneficiaries a short window (typically 30-60 days) to withdraw their portion of new trust contributions. Once this window closes, the assets remain in the trust, where they can grow tax-free under the trustee’s management. While beneficiaries must receive formal notice of these withdrawal rights, there’s typically a clear family understanding about preserving assets within the trust for long-term growth.
529 College Savings Plans
529 plans are another tax-efficient way to reduce your taxable estate while also utilizing the power of investments to achieve financial goals, and in this case, the primary goal is to pay for a beneficiary’s tuition.
While their contributions are also bound by annual gift exclusion limits like cash gifts, the IRS allows you to ‘superfund’ them, meaning that you can contribute five years’ worth of contributions upfront without affecting your lifetime exclusion limit. That is to say that you can contribute $95,000, or $190,000, as a married couple per beneficiary.
If you had instead chosen to invest in a standard brokerage account and then cashed out the assets later on, you would likely have to pay capital gains tax on your gains.
The figures in the image above are for educational and visual purposes only. Your results will vary. Always consult with a tax professional for advice.
Here’s the difference taxes make over 10 years: Let’s say you start with $95,000, and assume it grows at 10% annually. In a tax-advantaged account like a 529, you keep all $151,725 in growth, hitting $246,725 total. In a taxable account, that same growth gets hit with a 20% capital gains tax – that’s $30,345 gone – leaving you with $216,380. Same investment, same return, just a different tax treatment. That’s why where you hold your assets matters as much as what you invest in.
Strategic Charitable Giving
Charitable giving is one of the cleanest ways to reduce your estate’s size without burning through your gift exemptions. Charitable gifts work differently than family gifts. When you donate to charity, it doesn’t count against your annual gift exclusion or your lifetime exemption limit. Every dollar you give to charity is simply removed from your taxable estate, plus you get income tax deductions (up to 60% of your adjusted gross income for cash donations or 30-50% for property like stocks or real estate).
Again, though, similar to cash gifts or direct tuition and medical payments, those funds stop working for your long-term estate goals as soon as the transfer is conducted. By donating to a charitable trust, you can keep those funds working for your beneficiaries while still helping causes you care about.
Trust Strategies
You can think of trusts as specialized containers that protect your assets and help ensure they’re used according to your wishes. In the case of irrevocable trusts, once assets are transferred, they are no longer under your control; the trust’s terms dictate their use, and the trustee manages the assets and executes the trust’s functions. This legal separation also helps avoid lengthy and expensive litigation in the form of probate while keeping your family’s finances private.
Unlike outright gifts, trusts can provide asset protection from creditors, maintain family access to funds, and even create tax advantages that simple gifting often can’t match. Depending on your situation, you can utilize a wide range of trusts, such as Spousal Lifetime Access Trusts (SLATs), Charitable Trusts, Intentionally Defective Grantor Trusts (IDGTs), and Grantor Retained Annuity Trusts (GRATs)–to name a few.
Depending on the kind of trust, they can help provide income to your family, protect assets for future generations, support charitable causes, or assist with business succession planning. Often, combining trusts helps achieve multiple goals, though adding more can increase complexity. When considering a trust, it’s important to consult with a legal professional, as they are highly intricate and, if not correctly structured, can have serious consequences for your financial situation.
Let’s look at one final example of the difference between giving a straight donation versus using a tax-efficient trust strategy. We’ll use a Charitable Remainder Trust (CRT) for it–a trust that allows you to transfer assets to a trust, which then makes donations to a charity as stipulated in the trust’s terms.
So, say you had $2 million of appreciated stocks purchased at $500,000 that you would like to sell and split between charity and a beneficiary. Selling would trigger a 20% capital gains tax on the $1.5 million gain, resulting in a $300,000 tax bill and leaving only $1.7 million. Instead, by contributing the entire $2 million worth of stock to a CRT, you bypass the immediate tax hit and keep the full amount invested.
The figures in the image above are for educational and visual purposes only. Your results will vary. Always consult with a tax professional for advice.
The full $2 million grows at an assumed 7% annual rate within the trust, while each year, 5% of the trust’s updated principal is distributed to the designated charity. Over 20 years, the charity has received approximately $2.51 million in total distributions. At the end of the 20-year term, the beneficiary still receives about $2.78 million—substantially more than if you had sold the stock first and donated or gifted the remainder directly.
In Conclusion
These estate planning strategies represent just a fraction of what’s available. Your specific situation—whether it involves a family business, real estate holdings, or investment portfolios—will also determine which strategies make the most sense.
While the estate tax exemptions will likely stay favorable with recent political developments, that shouldn’t make us complacent. If you’d like to explore how current exemption limits could benefit your family before they expire, click below to set up a conversation. We’ll examine your whole financial picture and explore options that align with your personal, financial, and legacy goals.
