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Tax season brings questions to the surface. Clients call asking about annual gift limits, estate tax exemptions, and whether recent tax law changes affect their plans.
This article clarifies what you need to know about estate planning and taxes and how they fit into the bigger picture of estate planning, including when trusts help with taxes, what to consider before gifting assets, and why working with a professional team matters.
Do Trusts Help with Taxes? Yes, They Can
For higher-net-worth individuals, generally those with estates over $15 million for individuals or $30 million for married couples, certain trusts can help reduce or defer estate taxes. These strategies involve complex planning and coordination with tax professionals to minimize liability for future generations.
But here’s what’s important: even if you’re nowhere near those thresholds, trusts still serve valuable purposes. They allow you to:
- Name beneficiaries clearly and avoid ambiguity
- Control how and when assets are distributed (monthly allowances instead of lump sums, for example)
- Provide ongoing care and financial management for beneficiaries who need it
- Keep your estate out of probate court
Why You Need a Team, Not Just a Lawyer
Estate planning is a multi-disciplinary process. That’s why we believe in a team approach.
Who Should Be Involved
Attorneys – We handle the legal mechanics: drafting trusts, wills, and other estate planning documents that meet your goals.
Tax Professionals – They address gift taxes, stepped-up basis, and tax impacts of different planning strategies.
Financial advisors – They focus on asset growth, liquidity planning, and ensuring your financial goals align with your estate plan.
Real estate professionals – They help with title issues, ownership structures, and property-specific considerations.
Why Team Planning Works
No single expert sees the full picture alone. When professionals work in silos, blind spots emerge. By coordinating across disciplines, we ensure consistency between your tax strategy, financial goals, and legal documents.
You need everyone in the same room, looking at the whole picture. That’s when estate planning works best.
Gifting Strategies: Pros, Cons, and IRS Considerations
Some clients plan to give assets to their children while they’re still alive. This approach can work, and it’s perfectly legal. However, it comes with considerations that need to be understood before moving forward.
Potential Downsides of Gifting
Basis concerns – When you gift assets like real estate during your lifetime, the recipient takes over your cost basis. If they sell the property later, they may face significant capital gains taxes. By contrast, inherited assets typically receive a stepped-up basis, which can reduce or eliminate capital gains tax for your heirs.
Over-gifting risks – Giving away too much too soon can unintentionally impact your own financial flexibility or create complications down the road.
IRS reporting requirements – Gifts over a certain amount must be reported to the IRS, even if no tax is owed. Failing to file the required gift tax return can create problems later.
Why Professional Coordination Matters
Gifting decisions affect both your estate plan and your tax situation. That’s why these strategies require coordination between your attorney and your tax professional.
Estate Planning and Taxes: It Isn’t Just About Taxes
Many people believe estate planning is only necessary if you have significant wealth or if you’re trying to minimize estate taxes. This misconception keeps people from planning. The truth is that estate planning serves multiple purposes that have nothing to do with taxes:
- Avoiding probate – Probate is a public, time-consuming court process that can normally be avoided with proper planning
- Setting clear instructions – Your plan specifies who gets what, when, and how
- Reducing burden on loved ones – Clear documentation prevents family confusion and conflict
- Controlling asset distribution – You decide whether beneficiaries receive lump sums or ongoing support
- Providing for vulnerable beneficiaries – Trusts can protect heirs who aren’t equipped to manage large inheritances
These benefits apply whether your estate is worth $100,000 or $10 million.
Tax Season Estate Plan Consultation
If you have questions about your estate plan this tax season, we encourage you to speak with the experts.
We’re here to help you understand your options, coordinate with your other advisors, and create a plan that actually works for your situation.
