Orange County California

Trust Attorneys


Right now, the estate tax limit is at a historical high, at $12M for those dying this year. Amounts above this are subject to a 40% death tax at death. It will remain this high until the end of 2025, which means for those passing before January 1, 2026, they may leave $12M estate tax-free for their loved ones. Starting January 1, 2026, those dying in 2026 and later, will have only approximately a $6M estate tax limit, with a 40% death tax for any amount left to beneficiaries above $6M. So really, the $12M limit is a windfall for those dying right now. The question is how do you take advantage of the $12M exemption without dying?

The answer is through gifting to one or more irrevocable trusts. By gifting to an irrevocable trust now, you may transfer the value of assets out of your estate (up to $12M), report the gift to the IRS (which is tax-free because it would be under $12M) and no longer need to worry about the value of that asset being subject to estate tax at the time of your death.

The type of irrevocable trust to establish would depend on the types of assets you own. After reviewing the composition of your estate assets, our experienced estate planning attorneys will suggest the appropriate type of irrevocable trust(s) to establish. One common type of irrevocable trust is a Qualified Personal Residence Trust (QPRT).

The QPRT is a very common estate tax reduction strategy, and essentially it is an irrevocable trust that you may transfer your primary residence into. You then retain an interest for a term of years (that term can be anywhere from 10-40 years), with the property thereafter being distributed to your children/beneficiaries. The retained interest is considered to have some value, and so essentially you may gift a $2 million home to a trust and only use $500,000 of your estate tax credit because the gift is discounted to account for your retained interest. The appreciation of the home occurs outside of your estate, and you are able to gift it at a discount – meaning substantial estate tax savings to your heirs. For example, if that same $2M home is worth $4M at the time of your death, the entire property passes to your children estate-tax free and you’ve only utilized $500,000 of your $12M estate tax exemption to accomplish that transfer. QPRTs should be strongly considered by any single client who has near or above $6M in assets (and any married clients who have near or above $12M in assets).

In addition to QPRTs, we offer a multitude of irrevocable trust and estate planning strategies to reduce or eliminate estate taxes for high net worth individuals. You may schedule a consultation with our office to learn more – but time is of the essence as we will no longer have a $12M exemption after January 1, 2026, and if that exemption is not utilized through proper planning now, your valuable estate tax credit may be lost forever.

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