Tax Strategies To Consider for Families Passing Down Wealth
August 22, 2025
When families think about leaving a financial legacy, taxes are often one of the biggest concerns. Estate taxes, capital gains, and other transfer costs can reduce what heirs ultimately receive. With thoughtful planning, however, families can take steps to cut down on taxes and ensure more of their wealth goes to the next generation.
Below are some practical strategies families may want to consider when planning how to pass down assets efficiently.
1. Take Advantage of Annual Gift Tax Exclusions
The IRS allows individuals to give away a certain amount each year, tax-free, without tapping into their lifetime estate exemption. In 2025, that annual exclusion is $18,000 per recipient. Married couples can effectively double the amount by combining their gifts. Over time, consistent gifting can move substantial wealth out of an estate, reducing potential estate tax exposure.
2. Use the Lifetime Estate and Gift Tax Exemption
In addition to the annual exclusion, families can use the federal lifetime exemption (currently over $13 million per person in 2025). This means large transfers can be made during life without triggering federal estate or gift taxes. Using this exemption strategically—such as transferring appreciating assets earlier—can lock in today’s values and reduce future estate taxes.
3. Establish Trusts for More Control and Efficiency
Trusts are powerful tools for passing down wealth while managing tax consequences. Some options include:
● Revocable Living Trusts: Avoid probate and keep affairs private, though they don’t directly reduce estate taxes.
● Irrevocable Trusts: Remove assets from the taxable estate, often used with life insurance or investments expected to grow significantly.
● Generation-Skipping Trusts: Help families transfer wealth directly to grandchildren while minimizing estate taxes at multiple levels.
Trusts can also protect beneficiaries from creditors or poor financial management.
4. Make Charitable Donations
Philanthropy can benefit both a cause and a family’s tax plan. Charitable gifts made during life or through an estate reduce the taxable estate. Families may also consider donor-advised funds or charitable trusts to maximize flexibility and impact.
5. Convert Traditional IRAs to Roth IRAs
Retirement accounts are often overlooked in estate planning. Traditional IRAs and 401(k)s may come with large deferred tax liabilities for heirs. By converting some funds to Roth IRAs during retirement years—when tax rates may be lower—families can pay taxes upfront and pass down tax-free income later.
6. Consider Step-Up in Basis Rules
When heirs inherit appreciated assets like stocks or real estate, they typically receive a “step-up” in cost basis, which can greatly reduce capital gains taxes when they sell. Families may want to hold onto highly appreciated assets until death, rather than gifting them during life, to take advantage of this rule.
7. Explore Family Limited Partnerships (FLPs)
FLPs allow parents to transfer business interests or real estate to children while still maintaining control. Because of valuation discounts for minority interests and lack of marketability, families may transfer assets at a reduced taxable value.
8. Keep State Taxes in Mind
While federal estate taxes apply only to very large estates, some states impose their own estate or inheritance taxes with much lower exemptions. Families should review their state’s laws and consider relocation or planning strategies if state-level taxes are a concern.
The Importance of Professional Guidance
Tax laws surrounding estates and wealth transfers are complex—and they change frequently. A well-structured estate plan, built with the guidance of financial advisors, attorneys, and tax professionals, can help ensure families take full advantage of available opportunities while avoiding costly mistakes.
Bottom line
Families who plan early and use smart tax strategies can preserve more wealth for future generations. Whether through gifts, trusts, charitable giving, or retirement planning, proactive steps today can make a significant difference in the legacy left behind.
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Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.