How to Legally Pay Zero Estate Taxes: Advanced Planning Strategies
Estate Planning | by Jules Buxbaum | Monday, February 24, 2025
Estate tax avoidance is on many high-net-worth families’ minds, especially with the federal exemption set to drop after 2025. If you’re concerned about protecting your wealth through legal tax planning, you’re not alone.
Currently, the federal estate tax exemption stands at $13.99 million per individual for 2025. Still, many people want to reduce or eliminate estate taxes altogether. Fortunately, several wealth transfer strategies can help. For more localized insights, visit our detailed guide on estate taxes in NY, NC, and FL.
The Evolving Estate Tax Environment
The Tax Policy Center estimates that only about 4,000 U.S. estates will be taxable in 2023, which is less than 0.2% of all estates. Part of the reason is the historically high exemption amount. In 2025, a married couple can shield up to $27.98 million.
However, the current exemption is scheduled to sunset after 2025, possibly reverting to an inflation-adjusted amount near $7 million per individual. That shift means more families could face a 40% top federal estate tax rate on amounts above the threshold. This environment calls for advanced planning—especially if you anticipate a sizable estate in the future.
Key Strategies to Potentially Pay Zero Estate Taxes
Minimizing estate taxes involves combining multiple estate planning techniques. Below are some of the most powerful methods used by experienced advisors and attorneys.
Lifetime Gifting
Gifting reduces your taxable estate by shifting assets during your lifetime. In 2025, you can gift up to $19,000 to any number of recipients without using any portion of your $13.99 million lifetime exemption. That means a couple could transfer $38,000 each year to every child or grandchild.
Any gifts above $19,000 per recipient reduce your lifetime exemption, but they still help move future asset appreciation out of your estate. This approach is often called “estate freezing.” For deeper insights on family asset transfers, check out our article about whether you should create a family trust.
Irrevocable Life Insurance Trust (ILIT)
A large life insurance policy can push your estate beyond the exemption limit. An ILIT places ownership of the policy into a trust, removing its death benefit from your taxable estate.
Here’s how it works: You transfer your policy (or purchase a new one) in the name of the trust. You make “gifts” to the trust to cover premiums, and the trust becomes both the policy owner and beneficiary. When you pass away, the trust receives the proceeds outside your estate, potentially saving millions in estate taxes.
Grantor Retained Annuity Trusts (GRATs)
GRATs help transfer appreciating assets with minimal gift tax consequence. You place assets—often stocks with strong growth potential—into the trust and retain an annuity payout for a set term.
If the assets outperform the required interest rate (the Section 7520 rate), that growth transfers to your beneficiaries, free of estate taxes. According to some estimates, rolling short-term GRATs with fast-appreciating stocks can move substantial wealth out of your estate.
Qualified Personal Residence Trust (QPRT)
A QPRT lets you transfer your personal residence at a discounted gift valuation. You retain the right to live in the home for the trust term. Once the term ends, the property goes to your beneficiaries without further estate tax impact, as long as you outlive the trust period.
QPRTs can be especially beneficial in higher interest rate environments because the discount on the gift value is more favorable. However, you must continue to pay fair market rent if you wish to remain in the home after the trust term ends.
Family Limited Partnerships (FLPs)
In an FLP, you transfer assets—like a family business or real estate—into a partnership with general and limited partners. You typically remain the general partner, retaining control. Limited partnership interests are then given or sold to family members.
These interests may be valued below their pro rata share of the total due to “lack of control” and “lack of marketability.” That discount can lower your taxable gifts. Just be sure to keep good records and demonstrate a valid business purpose for the FLP.
Charitable Giving
When you donate assets to qualified charities, those amounts leave your taxable estate. Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs) can also provide unique tax advantages.
For instance, a CRT gives you or your beneficiaries an income stream for a set term, with the remainder going to charity. You might also receive an immediate income tax deduction, and the assets in the CRT grow outside your estate. With charitable giving, you reduce your estate’s value while benefiting causes you care about.
Generation-Skipping Transfers
A generation-skipping transfer (GST) trust focuses on grandchildren (or later generations) to bypass your children’s estates. You use a separate GST exemption (currently matching the estate tax exemption). After you pass away, the trust can continue growing, and those assets can remain free of estate taxes for multiple generations.
If structured correctly, a GST trust may allow your wealth to pass down several generations without triggering estate taxes at each step. That can preserve family assets for decades.
Evaluate Your Unique Situation With Two Pi’s Financial Planning Engine
Advanced strategies often require deep analysis to decide how to reduce estate taxes. Our firm believes in taking a data-driven approach to these major decisions. That’s why we recommend trying the Two Pi Financial Planner.
This powerful tool helps you input your details—estate size, retirement age, savings rate, and more—and see custom outcomes. You can learn how modest adjustments in risk tolerance or timeline might improve your projected results. The platform shows the probability of success, recommended withdrawal rates, and asset allocations that could help you keep more wealth for your loved ones.
Potential Pitfalls and Mistakes
While strategies for zero estate taxes sound appealing, mistakes can lead to unintended tax consequences. One misstep is failing to survive the term of certain trusts, like QPRTs or GRATs. If you pass away during the trust term, those assets may revert to your taxable estate.
Another pitfall is retaining too much control or “incidents of ownership.” The IRS may claim that certain trust assets never truly left your estate. Courts closely review whether you adhered to formalities like partnership agreements, trust documents, and gift tax returns.
Additionally, ignoring state estate tax laws can cost you. Some states have lower exemption thresholds or different rules than the federal system. If you want to look closer at local regulations, explore our article on estate planning laws in NY, NC & FL.
Wrapping Up
Paying zero estate taxes can become a reality with careful planning, but it usually requires combining multiple approaches. Lifetime gifts, specialized trusts, family limited partnerships, and charitable structures each serve unique objectives.
To go further in your research, read our guide on strategies to reduce estate taxes. By taking timely action, you can help preserve your wealth and pass it along according to your wishes.
References
(1) Morgan Lewis. (2024). “IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2025.” Available at: https://www.morganlewis.com/pubs/2024/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2025
(2) Tax Policy Center. (2023). “How Many People Pay the Estate Tax?” Available at: https://taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax
(3) Faegre Drinker. (2025). “2025 Estate Tax Exemptions and Planning Considerations.” Available at: https://www.faegredrinker.com/en/insights/publications/2025/1/2025-estate-tax-exemptions-and-planning-considerations
