Maximizing Estate Tax Efficiency: A Guide for Financial Planners on Estate Planning For High-Net-Worth Families

When managing finances for high-net-worth families, it’s essential to understand the effects of estate tax to ensure proper selection of planning strategy. Here are some suggestions from Cook Tilman on how to maximize tax efficiency for a high-net-worth family.

Key Estate Tax Considerations When Integrating Estate Planning Strategies Into Financial Plans

The primary tax in estate planning is the estate tax, which is a 40% tax on the value of an individual's estate that exceeds the estate tax exemption at the time of passing. For 2024, the federal estate tax exemption is $13.61 million per person or $27.22 million for a married couple. Here are the four most common planning options for a taxable estate.

Pay the Tax: One option is to take no action and pay the tax. The problem with this avenue is that there usually aren’t enough liquid assets to pay the tax when it is due. This forces the estate to sell illiquid assets at an inopportune time. For example, a client’s estate may be forced to sell commercial real estate in a down market. The client could also face potential penalties and interest for late payments if they cannot raise the needed liquidity before the tax deadline.

Irrevocable Life Insurance Trust: Another option is to create a pool of liquidity in the form of a life insurance policy owned by an irrevocable trust. The death benefit is paid to the trust upon the client's death, so the amounts are excluded from his or her estate for federal tax purposes. Such amounts may then be used to pay any estate tax liability incurred by the estate. Such a policy may be purchased on the life of an individual client (single-life policy) or, in the case of a married couple, on the life of the spouse who is second to die (survivor-life policy).

Spousal Lifetime Access Trust: A spousal lifetime access trust (SLAT) is an irrevocable trust that holds assets expected to appreciate. One spouse creates it for the benefit of the other and, in some cases, the children. A SLAT may be funded with assets up to the client’s remaining federal estate tax exemption (currently $13.61 million). The assets in the SLAT are not included in his or her estate for estate tax purposes and are also not in the beneficiary spouse’s estate. At the beneficiary spouse's death, the assets (and all accumulated appreciation) remain in trust for their children estate tax-free. The SLAT allows the client to capture his or her expiring estate tax and generation-skipping tax exemptions and keeps the asset appreciation from being subject to future estate and generation-skipping transfer tax.

Charitable Lead Trust: Planning within specific statutory requirements, a client’s estate plan can provide that, upon the client’s death, any amounts of their estate subject to estate tax will be contributed to an irrevocable trust known as a charitable lead trust. If the trust agreement directs distributions to be made to charity over the trust term in compliance with IRS requirements, then the present value of such distributions is deductible for estate tax purposes. If properly structured, a “zeroed out” distribution scheme may eliminate estate tax liability entirely.? Any remaining amounts left in trust at the end of its term can pass to the client’s heirs free of gift and estate tax.

Upcoming Changes in Estate Tax Laws and Regulations

While the current estate tax exemption of $13.61 million for an individual has kept many clients’ estates in the nontaxable realm, that may change beginning January 1, 2026. Absent congressional action, the historically high exemption will be cut in half when the 2017 Tax Cuts and Jobs Act expires at the end of 2025. As a result, individuals having a net worth exceeding $7 million (or $14 million for a married couple) will have to contend with the estate tax once again. Proper planning, therefore, requires forethought and action. Clients should explore opportunities to best use the high exemptions before they decrease. We encourage financial planners to identify clients that fall in the category and connect with Cook Tillman, ideally before the summer of 2025, so they can implement any necessary planning strategies before the tax changes take effect.

How Financial Planners Can Collaborate With Cook Tillman to Maximize Estate Tax Efficiency

If you’re a financial planner with clients who have a taxable estate and are likely to have more after the exemption sunsets in 2026, you must take proactive steps to maximize your clients’ tax savings on their estate. Our team at Cook Tillman is available to answer questions and provide continuing education seminars to aid financial planners with any questions or concerns.

At Cook Tillman, we are motivated to help financial planners navigate taxes and estate planning with their clients. Unique situations arise when dealing with clients with a high net worth, but this can be handled with thoughtful, informed planning. Have questions? Contact us at (615)-370 2444 or via our website.