5 Strategies to Reduce Estate Taxes: Advanced Estate Planning

Estate Planning | by Jules Buxbaum | Saturday, March 01, 2025

Are you concerned that federal estate taxes could erode your legacy? Many high-net-worth households rely on estate tax reduction strategies to pass funds efficiently to the next generation, rather than losing a substantial portion to tax obligations.

As of 2025, the federal estate tax exemption is $13.99 million per individual, but this elevated threshold may revert after 2025. If you have sizable assets or own property in multiple states, you’ll want to familiarize yourself with potential tax obligations across different regions. For more on state-level complexities, check out our resource on what to know about estate taxes in NY, NC, and FL.

Why Estate Taxes Still Matter

Federal estate taxes may affect fewer people than in previous decades, yet the risk looms large for families that exceed the current exemption. A 2021 Federal Reserve study found that the richest 1% of Americans hold roughly 32% of the nation’s wealth, magnifying estate tax exposure for high-net-worth individuals.

Additionally, many states impose their own estate or inheritance taxes with lower threshold amounts. That means some families could owe taxes at both federal and state levels, shrinking the inheritance they plan to leave.

Strategy 1: Lifetime Gifting

One of the most powerful ways to shrink your taxable estate is lifetime gifting. In 2025, you can give up to $19,000 per recipient annually without tapping into your lifetime gift tax exemption.

This approach gradually shifts wealth out of your estate while you’re still alive. By gifting appreciating assets, you also move future growth outside your taxable estate, potentially saving your heirs a substantial sum in taxes.

Strategy 2: Irrevocable Trusts

Irrevocable trusts remove assets from your estate, which can reduce future estate taxes. Common types include irrevocable life insurance trusts (ILITs) and grantor retained annuity trusts (GRATs).

For instance, ILITs hold life insurance policies so that proceeds bypass your estate, leaving funds readily available to cover any tax liabilities. GRATs let you shift appreciating assets to heirs at a reduced gift tax cost, especially if those assets grow considerably over time.

Strategy 3: Family Limited Partnerships

Family limited partnerships (FLPs) centralize assets, such as real estate or business interests, offering valuation discounts that may cut estate and gift taxes substantially. Limited partners own shares with restricted control, so the IRS often permits reduced valuations.

Beyond tax benefits, FLPs also streamline asset management. As the general partner, you retain most decision-making power while gradually transferring limited partnership interests to your heirs.

Strategy 4: Charitable Giving

Philanthropy can significantly lower your estate tax bill. By placing appreciating assets in a charitable remainder trust (CRT), you receive income for a designated period while ultimately benefiting a chosen nonprofit.

Donor-advised funds offer flexibility, letting you claim immediate tax deductions and determine how to distribute donations later. These approaches not only lessen estate taxes but also enhance your philanthropic legacy.

Strategy 5: Qualified Personal Residence Trusts (QPRTs)

With a QPRT, you transfer your home into an irrevocable trust while retaining the right to live there for a set term. The home’s value for gift tax purposes is significantly discounted, often yielding considerable estate tax savings.

Any appreciation in the property’s value also takes place outside your estate. However, if you pass away before the QPRT term ends, the home reverts to your estate for tax calculation.

Additional Considerations for Advanced Estate Planning

Keep an eye on shifting legislation. According to Faegre Drinker, current exemption levels may revert to pre-2018 norms in 2026, sharply reducing the amount you can transfer tax-free.

State-level rules are equally pivotal, as some states have steep estate tax “cliffs.” If you’re juggling assets across states, you might benefit from a more global approach. Learn more about advanced tactics in how to legally pay zero estate taxes: advanced planning strategies.

Also, consider your own retirement needs. If you plan substantial gifts or trust funding, make sure you’ll still have enough to maintain your lifestyle. This balance between generosity and ongoing security is at the heart of every successful plan.

How 2Pi Financial Can Help

At 2Pi Financial, we believe in personalized strategies. Our in-house data-driven tools evaluate taxes, future earnings, and projected investment returns to map out a plan that supports your goals.

If you’d like a hands-on example, try out our Two Pi Financial Planner. It shows how small adjustments in savings rates or your retirement date can drastically improve long-term forecasts for both your daily finances and your estate planning objectives.

Wrapping Up

Proactively managing your estate may save your beneficiaries millions in taxes, but timing and strategy are everything. Whether through lifetime gifting, irrevocable trusts, FLPs, charitable giving, or QPRTs, each method has its strengths and nuances.

Stay informed of legal updates and remember to review your plan regularly. For more regional details on inheritance and probate, see estate planning laws you need to know in NY, NC & FL. Strong planning now means greater financial security for the people and causes you care about.

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. Faegre Drinker. (2025). “Estate Tax Exemptions and Planning Considerations.” Available at: https://www.faegredrinker.com/pubs/estate-tax-exemptions-2025
3. Tax Policy Center. (2023). “Charitable Deduction and Federal Tax Revenue.” Available at: https://www.taxpolicycenter.org