The goal of estate planning is to provide for the management and transfer of your property in the event of your death or incapacity—at the smallest financial and emotional cost to your loved ones.
Without careful planning, your property may pass to unintended beneficiaries, your estate may be subject to unnecessary federal and state taxes, and your loved ones may be unable to access or manage funds when you cannot.
Learn how a properly structured plan can help ensure your wishes for your affairs are executed, mitigate or eliminate certain taxes, and provide comfort.
Managing Your Affairs in the Event of Incapacity or Death
There are a variety of legal documents that comprise a complete estate plan designed to protect your assets—and your family—if you become incapacitated and after you pass away.
Last Will and Testament: Outlines how your assets should be distributed, who should care for minor children, dependents, or pets, and names an executor to carry out the will.
Durable Powers of Attorney: Provides one or more individuals with the authority to manage your finances and/or make healthcare decisions on your behalf if you can no longer do so. The latter is also known as a Healthcare Proxy and requires a HIPAA authorization form.
Advance Healthcare Directive: Details your wishes for emergency treatment and end-of-life care should you become seriously injured, ill, or mentally incapacitated.
When you die, your property will be transferred in one of two ways. Certain assets will be distributed without reference to your Will or supervision by the probate court. These include:
- Assets owned jointly with right of survivorship, which will pass to the surviving joint owner.
- Assets held in trusts, which will pass according to the trust agreement.
- Life insurance or annuity proceeds, which will be paid to your designated beneficiaries.
- Pension, profit-sharing, deferred compensation or other corporate death benefits, and individual retirement accounts, which will be paid to the designated beneficiaries.
Your other assets will be distributed under the supervision of a public probate court in accordance with your Last Will and Testament, or if you do not have one, as provided by law.
If you’re looking for greater protection and control over the management and transfer of your assets, consider creating a revocable trust. This is a flexible legal arrangement in which you transfer assets to yourself, another individual, or a trust company as a “trustee.” The trustee invests, manages, and disposes of the assets for your benefit and, after your death, for the benefit of your beneficiaries. Trust assets are not subject to probate, which can ensure your family will continue to be provided for without interruption or additional stress.
Ensuring a Tax-Efficient Estate Plan
The federal government imposes an estate tax on transfers at death based on the fair market value of your property at the time of your death. The estate planning process focuses largely on reducing or potentially eliminating these taxes. This may be accomplished by taking maximum advantage of deductions and credits, which include: (1) the “estate tax exclusion amount” which exempts a specified amount of your estate from tax, and (2) the “unlimited marital deduction” available to U.S. citizens, which permits married couples to defer the tax until the survivor’s death.
Planning for Married Couples
If you leave all your assets to your spouse outright or in a qualifying “marital trust,” the marital deduction may permit all federal estate tax to be postponed until your spouse’s death. However, any assets remaining at your spouse’s death will be taxed as part of their estate.
Under the Tax Cuts and Jobs Act (“the Act”) of 2017, the estate tax basic exclusion amount and generation-skipping transfer (“GST”) tax exemption were significantly increased. The exemptions stand at $13,990,000 per individual for 2025.1 Provided certain conditions are met, the deceased spouse’s unused estate tax exclusion amount may be combined with the surviving spouse’s estate tax basic exclusion amount.
If the combined estates of you and your spouse exceed the amount exempt from the estate tax, the use of a simple estate plan leaving everything to your spouse may result in an unnecessary tax burden. Those taxes can be minimized or eliminated by taking advantage of both of your estate tax exclusion amounts. This can be accomplished at the first spouse’s death by leaving the amount exempt from estate tax in an “estate tax-sheltered trust” for the surviving spouse. Your spouse can be given the entire net income of the trust and any principal needed to support their lifestyle and a right to withdraw 5 percent of the trust principal every year without regard to need. Your spouse also may be given limited rights to determine who will receive the trust funds at their death.
Planning for Your Children or Grandchildren’s Inheritance
If you leave property to children or grandchildren under eighteen, a guardian will be appointed to manage the child’s property until that time. The guardian will be entitled to reasonable compensation and must account to the court at least annually for approval of his or her actions. To avoid the necessity and cost of a court-appointed guardian, you can create a trust and name a trustee to manage and distribute the funds as needed until your beneficiary reaches the age (or level of financial literacy) you choose.
Generation-Skipping Tax Planning
If you leave your estate to your children, it could be subject to estate tax at your death and, to the extent it is not consumed during their lifetime, to a possible second estate tax at their deaths. Many people have tried to avoid this second estate tax by leaving all or a portion of their estates directly to their grandchildren or in trust for their children’s lifetime. Unfortunately, such transfers may be subject to an additional generation-skipping transfer (GST) tax.
For instance, if you leave your entire estate directly to your grandchildren, it may be subject to both estate and generation-skipping transfer taxes at your death. Careful planning can help minimize the additional tax burden and provide enhanced protection for your beneficiaries. If the GST exemption is allocated to create a fully GST-exempt trust, no distributions (including final distributions) will be subject to the generation-skipping transfer tax.
Gifting Strategies
If your estate could be subject to federal estate tax even after you take full advantage of the available credits and deductions, the tax may be substantially reduced through lifetime giving. The most attractive gifts are assets with a low current value but are likely to appreciate or generate substantial income during your lifetime. A gift of such assets can avoid estate tax on both the appreciation in value and future income.
Lifetime gifts are subject to a federal “gift tax,” imposed at the same basic tax rate as the estate tax. However, in 2025, you can give up to $19,000 annually to as many people as you like without paying gift tax or filing a gift tax return.1 If you’re married, you can double the amount but must file a gift tax return.
For instance, if you and your spouse have two children and four grandchildren, you can give $38,000 to each family member—or $228,000 annually. Even if your gifts exceed the available annual exclusions, no tax must be paid until your cumulative gifts exceed your lifetime gift tax credit. Such gifts will, however, reduce the amount that can be transferred tax-free at your death since they will use up the estate tax credit.
If you make substantial gifts to charity each year or intend to do so at your death, you may be interested in establishing a charitable trust, private foundation, or other vehicle for charitable giving. This can increase or accelerate your available income and estate tax deductions.
Understanding the intricacies of estate planning can be challenging. Your MAI advisor is here to provide support, answer questions, and work with your attorney and tax specialists to craft an estate plan that aligns with your family’s unique needs and goals.
Sources
1 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
https://www.kiplinger.com/personal-finance/the-basics-of-estate-planning
https://smartasset.com/financial-advisor/marital-trust
https://www.investopedia.com/terms/g/generation-skipping-transfer-tax.asp
Please send your questions, comments, and feedback to: info@mai.capital This article is provided by MAI for informational purposes only. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.
