High Net Worth and Complex Estate Planning Strategies

High-net-worth estate planning strategies center on using the permanent $15 million federal exemption efficiently, moving appreciating assets into irrevocable trusts, discounting the value of what is transferred through family entities, funding charitable structures that shrink the taxable estate, and buying life insurance inside a trust to cover whatever tax bill remains. Estates above $15 million face federal estate tax at rates reaching 40 percent, and the tax is due in cash within nine months of death. For a couple with $30 million or more in combined assets, the difference between careful planning and no planning is measured in millions.

The One Big Beautiful Bill Act, signed on July 4, 2025, made the $15 million individual exemption permanent and indexed it for inflation, so the planning environment is stable for the first time in years. That stability is what makes long-horizon strategies worth the effort again.

The Exemption You Are Planning Around

The federal framework begins with the unified credit under Internal Revenue Code Section 2010, which shields a set amount from tax at death. For 2026, the individual exemption is $15 million, and any value above that is taxed on a progressive schedule that tops out at 40 percent on amounts more than $1 million over the exemption.¹ Because the OBBB indexed the exemption, the number will rise slightly each year rather than reverting.²

The same credit covers lifetime gifts. Any gift to one person that exceeds the 2026 annual exclusion of $19,000 must be reported on a gift tax return, and each reported gift reduces the $15 million lifetime exemption available at death.² The IRS tracks cumulative transfers, so gift and estate planning are really one integrated calculation.

The nine-month payment deadline is the other constant. Whatever tax the estate owes is generally due within nine months of the date of death, the same clock that runs on the estate tax return.³ That deadline drives almost every liquidity decision in the plan.

Getting the Full $30 Million as a Married Couple

Portability under Section 2010(c)(4) lets a surviving spouse claim whatever exemption the first spouse did not use, in theory shielding up to $30 million from federal estate tax. But portability only works if the executor of the first spouse’s estate files a federal estate tax return electing it, even when the estate is well below the taxable threshold and owes nothing.⁴ Miss that filing and the unused exemption is gone.

This is where families make one of the most expensive mistakes in estate planning. The surviving spouse may not think about federal taxes for years, and by the time they do, the deadline has passed. For any couple with combined assets that could approach the exemption, filing that return should be treated as mandatory regardless of whether tax is owed at the first death.

When the Surviving Spouse Is Not a U.S. Citizen

Portability assumes both spouses are U.S. citizens. When the survivor is not, the unlimited marital deduction does not apply, and the estate must use a Qualified Domestic Trust (QDOT) under Section 2056A to defer the tax. A QDOT requires at least one trustee who is a U.S. citizen or a domestic corporation, and that trustee must have the right to withhold estate tax from any principal distribution to the surviving spouse.⁵ Income distributions and hardship withdrawals are exempt from the tax; other principal distributions trigger estate tax calculated as if the amount had been in the deceased spouse’s estate.

If the QDOT holds more than $2 million, it must either have a bank as trustee or post a bond equal to 65 percent of fair market value. The election is made on the estate tax return and is irrevocable. Families with cross-border marriages should build the QDOT into the plan in advance, not scramble to create one under a nine-month deadline.

Moving Appreciating Assets Out of the Estate

When the goal is to move fast-growing assets out of the taxable estate, Grantor Retained Annuity Trusts (GRATs) are the workhorse. The owner transfers assets into an irrevocable trust and keeps the right to fixed annuity payments for a set term. Under Section 2702, the taxable gift equals the value transferred minus the present value of the retained annuity.⁶ If the assets grow faster than the Section 7520 rate the IRS uses to value that annuity, the excess growth passes to beneficiaries gift-tax-free.⁷

Many planners structure GRATs so the annuity payments nearly equal the value transferred, producing a “zeroed-out” GRAT with almost no reportable gift. The catch is mortality: if the grantor dies during the term, the entire value snaps back into the taxable estate. Short GRATs of two or three years limit that risk while still capturing appreciation when the assets perform.

Qualified Personal Residence Trusts (QPRTs) apply the same mechanics to a home. The owner transfers the residence into an irrevocable trust but keeps the right to live there for a set term. Because beneficiaries do not receive the home until the term expires, the taxable gift is calculated at a steep discount tied to the grantor’s age and the length of the retained interest. Outlive the term and the home and its appreciation pass at a fraction of the normal gift tax cost. Die during the term and the home returns to the taxable estate.

Discounting the Value of What You Transfer

What the IRS values a transferred asset at matters as much as which trust holds it. Family Limited Partnerships (FLPs) and family LLCs are used to hold businesses, real estate, and investment portfolios partly because they enable valuation discounts. When a parent transfers a minority interest in the family entity to a child, that interest is worth less than a proportional slice of the underlying assets for two reasons appraisers quantify separately.

The first is a lack-of-marketability discount. An interest in a private family entity cannot be sold on a public exchange, and there is no ready market of buyers willing to pay full price for an illiquid stake. The second is a lack-of-control discount. A minority holder cannot force distributions, liquidate the entity, or set management policy. Combined, these discounts can meaningfully reduce reported transfer value, though exact percentages depend on the restrictions in the governing agreement, the type of underlying assets, and the quality of the appraisal.

The IRS scrutinizes these arrangements heavily, and courts have upheld discounts only when the entity serves a legitimate business purpose beyond tax savings. The entity needs real economic substance: separately maintained bank accounts, documented management decisions, arm’s-length transactions, and actual business operations or investment management. If the IRS concludes the structure exists solely to generate discounts, it can collapse the entity and value the underlying assets at full fair market value. Section 2704 gives the IRS authority to disregard certain restrictions on liquidation rights when the family controls the entity and imposes those restrictions.

The appraisal supporting any discount must meet IRS standards for a qualified appraisal. The appraiser needs verifiable credentials, must follow the Uniform Standards of Professional Appraisal Practice, and cannot charge a fee based on the appraised value.⁸ Appraisers who substantially understate value face their own penalties under Section 6695A.⁹

Reaching Grandchildren Without a Second Tax

Federal law imposes a separate generation-skipping transfer (GST) tax when wealth passes to grandchildren or more remote descendants, whether directly or through a trust. Without it, a family could skip one generation’s estate tax by leaving everything to grandchildren. The GST tax closes that door with a flat 40 percent rate on top of any estate or gift tax that would otherwise apply.¹⁰

Each person gets a separate GST exemption equal to the basic exclusion, $15 million in 2026, also made permanent and indexed by the OBBB.¹¹ Transfers covered by the exemption pass to grandchildren and beyond without triggering the additional tax. Transfers above the exemption can face a combined effective rate above 65 percent when estate and GST taxes stack.

Dynasty Trusts

The most aggressive use of the GST exemption is a dynasty trust designed to last for multiple generations, distributing income and principal to descendants while keeping trust assets outside each generation’s taxable estate. Properly funded within the GST exemption, every future generation benefits without additional transfer tax. A growing number of states have abolished or dramatically extended their rules against perpetuities, letting dynasty trusts run for centuries or indefinitely. The choice of trust situs matters, because state law controls how long the trust can survive.

Charitable Structures That Shrink the Estate

Charitable planning supports the family’s philanthropy while generating deductions that reduce the taxable estate. The two main split-interest vehicles are Charitable Remainder Trusts and Charitable Lead Trusts, which divide an asset’s benefits between charity and family in opposite directions.

Charitable Remainder Trusts

A CRT pays income to the donor or family for a set period or for life, and whatever remains goes to charity when the income stream ends. The donor gets an income tax deduction under Section 170 equal to the present value of the remainder interest.¹² The trust itself is tax-exempt under Section 664, so it can sell highly appreciated assets without triggering capital gains at the trust level.¹³ That feature makes CRTs especially useful for families holding concentrated stock positions or real estate with large built-in gains.

Charitable Lead Trusts

A CLT runs in reverse. Charity receives income for a set term, and the remaining assets pass to the family at the end. The gift tax value of the transfer to the family is calculated at the trust’s creation using the Section 7520 rate. When that rate is low, the IRS assumes slow growth, the projected remainder looks smaller on paper, and the reportable gift is smaller. Actual growth above that assumed rate reaches the family free of gift tax. CLTs are governed by the charitable deduction provisions of Sections 2055 and 2522 for estate and gift tax purposes, not Section 664.

Private Foundations

Some families prefer the control of a private foundation. Contributions reduce the taxable estate and generate income tax deductions, but foundations carry strict compliance duties. Under Section 4942, a private foundation must distribute at least 5 percent of the fair market value of its non-charitable-use assets each year as qualifying charitable distributions.¹⁴ Miss the minimum and the foundation faces an initial excise tax of 30 percent on the undistributed amount, followed by a 100 percent tax if the shortfall is not corrected within 90 days of IRS notification.¹⁵ Excess distributions can be carried forward for up to five years, giving foundations some flexibility in timing large grants.

Paying the Tax Bill Without Selling the Business

Even a well-planned estate can still owe significant tax due in cash within nine months. The Irrevocable Life Insurance Trust (ILIT) solves the liquidity problem without adding to the taxable estate. Under Section 2042, if you own a life insurance policy at death, the full death benefit is included in your gross estate.¹⁶ An ILIT eliminates that inclusion by making the trust, not you, the owner and beneficiary.

The key is having no “incidents of ownership,” which the statute defines broadly to include the right to change the beneficiary, borrow against cash value, cancel the policy, or hold a reversionary interest worth more than 5 percent of the policy value.¹⁶ An independent trustee must manage the trust and make policy decisions. Retain any of these rights and the IRS includes the entire death benefit in the estate.

When the insured dies, the insurer pays the death benefit to the ILIT. The trustee can then lend money to the estate or buy assets from it, giving the executor cash to pay estate tax without forcing a fire sale of a family business or real estate. The proceeds stay outside the taxable estate.

The Three-Year Rule

Timing matters. Under Section 2035, if you transfer an existing policy to an ILIT and die within three years, the death benefit is pulled back into your gross estate as if you still owned it.¹⁷ The safest approach is to have the ILIT purchase a new policy from the start, so the insured never holds incidents of ownership. For anyone transferring an existing policy, the three-year clock is a real risk to weigh against the cost of a new policy.

Funding Premiums With Crummey Powers

Premiums create their own problem. Each payment is a gift to the trust, and gifts to trusts normally do not qualify for the $19,000 annual exclusion because beneficiaries lack immediate access. The workaround is Crummey withdrawal powers. Each time a contribution is made, the trustee sends written notices giving beneficiaries a limited window, typically 30 to 60 days, to withdraw their share. Because they technically have present access, the IRS treats the contribution as a present-interest gift that qualifies for the annual exclusion. In practice, beneficiaries almost never withdraw. But the notices must go out every time, and meticulous records are essential to preserving the trust’s tax status.

Coordinating With the Basis Rules

Estate tax gets the attention, but income tax on capital gains is where poor planning often costs the most. Under Section 1014, when someone inherits property, their cost basis becomes the fair market value on the date of death rather than what the original owner paid.¹⁸ If a parent bought stock for $100,000 and it is worth $2 million at death, the heir takes a $2 million basis and can sell the next day owing no capital gains tax.

Lifetime gifts work differently. The recipient takes the donor’s original basis. Same stock, gifted while the parent is alive, and the heir sells for $2 million with $1.9 million of taxable gain. Strategies that aggressively reduce the taxable estate through lifetime gifts can shift millions in capital gains tax onto the next generation. The best planners weigh estate tax and income tax together, often leaving highly appreciated assets in the estate to capture the step-up and using trusts to move assets with less appreciation or the most future growth potential. One anti-abuse rule to watch: if appreciated property is gifted to a dying person within a year of death and passes back to the original donor, the step-up does not apply.¹⁸

Don’t Forget the State Tax

Federal planning alone is not enough. Twelve states and the District of Columbia impose their own estate taxes, and five states levy inheritance taxes, with Maryland imposing both. State exemption thresholds are often far below the federal level. Oregon’s estate tax starts at $1 million, Massachusetts at $2 million, and Minnesota at $3 million. Families whose estates sit comfortably below the $15 million federal threshold can still face state estate tax bills in the hundreds of thousands.

State inheritance taxes work on a different model. Rather than taxing the estate as a whole, they tax each beneficiary based on their relationship to the deceased. Close family members typically get higher exemptions or lower rates; unrelated beneficiaries can face substantial bills. Strategies that reduce the federal estate may not reduce the state tax, and vice versa. Families with property in more than one state face potential estate or inheritance tax in each state where they own real property, regardless of where they live.

1
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
2
Internal Revenue Service. What’s New – Estate and Gift Tax
3
eCFR. 26 CFR 20.6075-1 – Time for Filing Estate Tax Return
4
Federal Register. Portability of a Deceased Spousal Unused Exclusion Amount
5
Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust
6
Office of the Law Revision Counsel. 26 USC 2702 – Special Valuation Rules in Case of Transfers of Interests in Trusts
7
Internal Revenue Service. Section 7520 Interest Rates
8
eCFR. 26 CFR 1.170A-17 – Qualified Appraisal and Qualified Appraiser
9
Office of the Law Revision Counsel. 26 USC 6695A – Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals
10
Congress.gov. The Generation-Skipping Transfer Tax (GSTT)
11
Office of the Law Revision Counsel. 26 USC 2631 – GST Exemption
12
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
13
Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts
14
Office of the Law Revision Counsel. 26 USC 4942 – Taxes on Failure to Distribute Income
15
Internal Revenue Service. Taxes on Failure to Distribute Income (Private Foundations)
16
Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance
17
Office of the Law Revision Counsel. 26 USC 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedent’s Death
18
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent