At EsqWealth, we know the thought of changing tax laws can make even the savviest investors feel like they’re playing financial dodgeball. With 2025 on the horizon, high-net-worth individuals are facing new tax challenges that could throw a wrench into their carefully crafted estate plans. The Trump-era tax cuts are set to expire, which could shrink the estate-tax exemption by more than half. Translation: your heirs could be hit with a lot more in taxes if you don’t plan ahead.
To help you navigate these choppy waters, we’ve gathered a few of our favorite tools from the estate-planning toolkit. From a GRAT to a QPRT to a SLAT—and don’t forget the CLAT and CRT—this alphabet soup of acronyms might sound like a secret code, but each one can serve as a powerful weapon against Uncle Sam’s tax grab. Here are five smart moves high-net-worth individuals are putting in place to leave their legacy intact.
1. Grantor Retained Annuity Trust (GRAT)
First up in our soup of savvy strategies: the Grantor Retained Annuity Trust (GRAT). Think of this as a way to move appreciating assets to your heirs without triggering gift taxes. You put assets like stocks or real estate into a trust, collect an annuity for a set number of years, and if all goes well, the leftover growth passes to your beneficiaries tax-free.
It’s like giving your wealth a one-way ticket to the next generation—just without the tax bill. The trick here is that your assets need to grow faster than the interest rate the IRS sets. With today’s elevated rates, it’s a great time to lock in a GRAT and let your assets do the heavy lifting.
2. Qualified Personal Residence Trust (QPRT)
Got a fancy vacation home or primary residence you want to keep in the family? Enter the Qualified Personal Residence Trust (QPRT). This strategy lets you transfer your home or your vacation home into a trust while you keep enjoying it for a set term. After the term ends, the home goes to your heirs at a reduced taxable value.
It’s the estate-planning equivalent of having your cake and eating it too. Just make sure you outlive the trust term—otherwise, your home gets pulled back into your estate and the taxman shows up with a bill. For those in their 50s or 60s, a QPRT can be a fantastic way to pass on real estate without getting hit with a huge tax hit.
3. Spousal Lifetime Access Trust (SLAT)
If you’re in a committed relationship and looking to reduce taxes while keeping a little financial flexibility, a Spousal Lifetime Access Trust (SLAT) could be just what you need. This irrevocable trust allows one spouse to provide for the other, while excluding the assets from the donor’s estate. The beneficiary spouse can tap into the trust for living expenses, keeping both of you comfortable while the assets grow out of reach from estate taxes.
It’s like giving a big tax-friendly gift, but with a safety net. Just be careful about setting up “mirror image” trusts for each other, as the IRS might call foul under the reciprocal trust doctrine. Luckily, your friends at EsqWealth can help you structure it correctly—no IRS penalties here!
4. Charitable Lead Annuity Trust (CLAT)
Let’s add some philanthropy into the mix with a Charitable Lead Annuity Trust (CLAT). This strategy lets you transfer assets into a trust that pays a charity of your choice for a set number of years. You’ll get a tax deduction upfront, and after the term is up, whatever is left in the trust goes to your heirs.
It’s like being Santa Claus for a while, then surprising your heirs with a big gift later. Plus, in today’s high-interest-rate world, CLATs are more valuable than ever because the IRS lets you discount the value of the gift to your beneficiaries. It’s a win-win for both your charitable cause and your heirs.
5. Charitable Remainder Trust (CRT)
Last but not least, the Charitable Remainder Trust (CRT) is for those of you who want to give back but also like the idea of getting a little something in return. With a CRT, you donate assets to a trust, get a lifetime income stream, and then when you’re done enjoying the fruits of your generosity, the remaining assets go to a charity of your choice.
This strategy provides an immediate tax deduction based on the future gift to charity, and, just like the CLAT, elevated interest rates make this deduction even juicier. Plus, your estate will thank you for trimming down its taxable size while you maintain your income. This strategy is like having your cake, eating it, and then donating the plate to a good cause!
Don’t Wait—Time is Ticking
When you pass away, your estate is subject to federal estate taxes if its value exceeds the exemption limit—currently $13.6 million per individual in 2024. If Congress doesn’t act by the end of 2025, the current estate tax exemption will revert to its pre-2017 level—around $7 million, adjusted for inflation. Any assets above that threshold can be taxed at a hefty 40%. That means if you haven’t done proper planning, a significant portion of your hard-earned wealth could end up in the hands of the IRS rather than benefiting your loved ones. This is why estate planning attorneys take proactive steps to reduce your taxable estate, employing strategies like trusts, charitable giving, and asset reallocation. The upfront cost for setting up these plans may be several thousand dollars, but the potential savings for your heirs could reach into the millions. So, the question becomes: would you rather leave 40% of your estate to the IRS or ensure it goes to the people and causes that matter most to you? As Warren Buffet said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”
With the potential expiration of the current tax cuts on the horizon, the clock is ticking. Setting up complex trusts like a GRAT, QPRT, SLAT, CLAT, or CRT can take time, and estate planners are already booking up months in advance. Here at EsqWealth, we’re ready to help you navigate the legal and financial intricacies of these strategies and figure out the best mix for your unique situation.
Conclusion
There are many other strategies not covered in this article that could apply to your situation. The best approach depends on your unique circumstances and goals. Consulting with a seasoned estate planning professional ensures that your plan fits your needs and maximizes the benefits for your heirs.
