Wills, Trusts & Estates

exemption. As of 2018, the federal estate tax exemption was $11,180,000. For a
married couple, the combined exemption is $22,360,000.
Tax Strategies
One way to avoid U.S. Federal estate and gift taxes is to distribute the property in
incremental gifts during the person's lifetime. Individuals may give away as much as
$15,000 per year (in 2018) without incurring gift tax. Other tax free alternatives include
paying a grandchild’s college tuition or medical insurance premiums free of gift tax—but
only if the payments are made directly to the educational institution or medical provider.
Other tax advantaged alternatives to leaving property, outside of a will, include qualified
or non-qualified retirement plans (e.g. 401(k) plans and IRAs) certain “trustee” bank
accounts, transfer on death (or TOD) financial accounts, and life insurance proceeds.
Because life insurance proceeds generally are not taxed for U.S. Federal income tax
purposes, a life insurance trust could be used to pay estate taxes. However, if the
decedent holds any incidents of ownership like the ability to remove or change a
beneficiary, the proceeds will be treated as part of his estate and will generally be
subject to the U.S. Federal estate tax. For this reason, the trust vehicle is used to own
the life insurance policy. The trust must be irrevocable to avoid taxation of the life
insurance proceeds.
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