Other Tax Strategies

Gift Planning

By gifting a portion of their assets to one of any number of various trusts, an investor can reduce his or her taxable estate. Grantor Retained Annuity Trusts, or GRATs, and Intentionally Defective Grantor Trusts, or IDGTs, are particularly effective for those investors well over the estate tax exemption threshold, which for 2020 is $11,580,000 for individuals and twice that for married couples. We work with estate planning specialists when these types of strategies make the most sense.

For many, though, a no cost and less restrictive method for avoiding estate taxes is to reduce the estate by gifting. Both husband and wife can avoid gift taxes and still each give up to $15,000 annually to any individual and no maximum exists for paying for another’s tuition and certain medical bills (including insurance). For those who want to retain control, a 529 Plan assures the gift used for only education and can be transferred to other family heirs if unused. A life insurance policy for the benefit of someone outside the estate can augment gifting, too, and we will work with a licensed professional in those situations. The important point is that the threshold is currently high enough and the opportunities to bring an estate down numerous enough to avoid for many the costs of setting up more restrictive trusts.

Charitable Giving and Donor Advised Funds

Giving to a charity has no limits so can also be effective in bringing down the value of an estate. The charitable gifting of appreciated stock also avoids capital gains. We encourage the use of Donor Advised Funds, in particular. An investor can donate periodically or even in one lump sum to the fund and recommend gifts as low at $50 and the minimum $100 annual fee (at least at Charles Schwab) is modest as long as the funds are kept at a minimum.

Income Deferrals and Roth IRAs

Although less of a strategy during employment, managing your taxable income throughout your retirement by the expedient recognition of capital gains and employment of Roth IRAs can limit income taxes by keeping below certain marginal tax thresholds. Unlike with traditional IRAs, the withdrawals from Roth IRAs are tax-free and can be delayed. The beneficiary can also limit withdrawals for up to 10 years making it a valuable estate asset.  

• Back to Optimal Tax Efficiency
• Tax Loss Harvesting
• Usage of Tax Deferred Accounts