Estate Tax Planning and Compliance (2024)

Estate Tax Planning and Compliance (1)

Estate tax planning and compliance are essential components of financial planning for individuals with significant assets. Estate taxes can significantly reduce the value of an estate, which can have a profound impact on beneficiaries’ future financial security. By establishing an effective estate tax plan, you can minimize your own tax burden while ensuring that your wealth is transferred to those who matter most in the way you intended. In this article, we will discuss how to create a comprehensive inheritance tax plan and what steps you should take to ensure its successful implementation.

What is estate tax?

The estate tax is a type of taxation imposed upon the transfer of assets from one person to another. It is also known as "inheritance tax" or "death tax," since it is often applied when an individual passes away and their estate is distributed to heirs or other beneficiaries. Estate taxes are usually levied by both federal government and state governments, though the specifics of each jurisdiction's tax laws may vary.

Estate taxes are generally progressive, meaning that they start at a lower rate on smaller estates but rise with larger account balances. The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them.

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Gross estate

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The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Once you have accounted for the Gross Estate, certain deductions (and in special circ*mstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify. The gross estate includes all property in which the decedent had an interest (including property outside the United States). It also includes:

  • Certain transfers made during the decedent's life without adequate and full consideration in money or money's worth

  • Annuities

  • The includible portion of joint estates with right of survivorship (see the instructions for Schedule E)

  • The includible portion of tenancies by the entirety (see the instructions for Schedule E)

  • Certain life insurance proceeds (even though payable to beneficiaries other than the estate) (see the instructions for Schedule D)

  • Digital assets (see the instructions for Schedule F)

  • Property over which the decedent possessed a general power of appointment

  • Dower or curtesy (or statutory estate) of the surviving spouse

  • Community property to the extent of the decedent's interest as defined by applicable law

Estate tax planning

Estate tax planning is the process of determining how to minimize the amount of estate taxes due on an individual's estate. The goal of estate plans is usually to maximize the amount of wealth that can be transferred to heirs or other beneficiaries while minimizing the amount of money paid in taxes. This often involves transferring assets into trusts or taking advantage of various deductions and credits available in the tax code.

Inheritance tax planning or estate planning involves finding ways to reduce the inheritance taxes owed upon an individual's death. The primary objective of estate planning is to increase the amount of wealth that can be passed down to heirs and beneficiaries while minimizing tax payments. This can be achieved through strategies such as utilizing available deductions and credits in the tax code or transferring assets to trusts. Wealth transfer planning should be an integral part of any income tax planning. You pay your income tax on your income however, you pay your inheritance taxes on your total net worth.

When should I start planning inheritance tax?

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It is generally a good idea to start planning for inheritance tax as early as possible. Estate planning involves taking steps to reduce the amount of tax that may be payable on your estate when you pass away, and this can often take time to implement. We have worked with families on their own estate plans and as soon as we finish with the parents, then we start working with the children.

Wealth transfer planning can be done with an experienced estate tax attorney, financial advisor and CPA who can explain the different options available and help create a comprehensive plan tailored to your specific needs. By starting early, you can also ensure that any potential issues are addressed before they become problems down the road. By creating a comprehensive estate plan that takes into account your personal and business goals and the current tax laws, you can maximize the amount of wealth transferred to your loved ones while minimizing the amount of taxes due to the government.

Tax Tips: Not planning for the transfer of your wealth is like going to Vegas. If you don't plan and anything happens to you, you lose 40% of your wealth to pay the government.

Similarly, the Alternative Minimum Tax (AMT) can be a significant concern for high-net-worth individuals. The AMT can apply to estates and trusts in addition to individual taxpayers, and it can greatly affect the tax liability of an estate or trust.

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Estate tax planning vs income tax planning

Estate tax planning involves developing strategies to minimize the taxes that will be due upon a person's death. Estate tax planning is typically focused on minimizing the impact of federal and state estate taxes, which can be significant for larger estates. On the other hand, income tax planning involves developing strategies to minimize the income taxes that are due on a person's income. This can include maximizing tax deductions, structuring investments in a tax-efficient manner, and taking advantage of available credits and tax-deferred accounts.

What are the gift tax exclusion and the gift and estate exemptions for 2023?

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The gift tax exclusion for 2023 is $17,000. That means you could give up to $17,000 (or a married couple could give a total annual exclusion amount of $34,000) in annual exclusion gifts to any person.

The lifetime gift and estate exemption for 2023 is $12.92 million (or $25.84 million per married couple). The gift and estate tax exemption is the amount you can transfer during your life or at your death without incurring gift or estate tax.

Estate tax planning strategies

There are many strategies available to help individuals minimize their estate tax liability. Here are the most common estate tax planning strategies:


Gifting is one of the most commonly used estate tax and gift planning strategies. By gifting up to the amount of exclusion per person, per year, you can reduce your taxable estate and transfer wealth to your loved ones without incurring any gift taxes. Additionally, if you are married, you may be able to “split” gifts with your spouse, allowing you to double the number of gifts that can be given without incurring gift taxes.

Lifetime Gift & Estate Exemption

The Lifetime Gift & Estate Exemption is an important tool for those looking to reduce their inheritance tax liability by reducing the size of their taxable estate by making gifts elsewhere. This exemption allows individuals to give away up to the lifetime gift tax exemption amount without incurring gift or estate taxes. Utilizing the lifetime gift exemption can help reduce your taxable estate by allowing the assets transferred to the family to grow free of estate taxes.

Tax Tips: the current lifetime estate tax exemption amount is set to expire on December 31, 2025. The estate tax exemption amount will be decreased to approximately $6.4 million per person. If you don't take advantage of the current exclusion, you are missing on the free transfer of assets to your children and family.

Life insurance

Life insurance can be an effective estate planning strategy to help reduce the burden of taxes on your beneficiaries. By purchasing a life insurance policy, you can transfer wealth to your loved ones in an efficient manner. Upon death, the life insurance proceeds are generally free from federal estate tax and can provide additional cash flow and liquidity for your beneficiaries to cover potential taxes due on the estate. Additionally, if you establish an irrevocable life insurance trust (ILIT) to own and manage your policy, you can gain additional benefits such as asset protection and tax savings.


Trusts can be an effective estate planning strategy for individuals looking to preserve their wealth and minimize their estate taxes. Trusts are legal entities that can be used to hold property or other assets and manage them according to the terms of the trust. By transferring assets into a trust, individuals can limit their taxable estate as well as gain various income tax and estate planning advantages, such as asset protection and tax savings. Trusts can also be used for income tax purposes by transferring income-producing assets to members of the family at a lower bracket. Trusts allow you to control how and when assets are distributed and provide estate tax benefits as well.

Grantor Retained Annuity Trust (GRAT)

A Grantor Retained Annuity Trust (GRAT) is one of the most effective estate and gift tax planning strategies to reduce an individual's tax liability on estate and gift and maximize the wealth transferred to their loved ones. This strategy uses an irrevocable trust to transfer assets with little or no gift or estate taxes due. Under a GRAT, the grantor transfers assets to an irrevocable trust for a specified term and retains the right to receive annual annuity payments from the trust. At the end of the term, any remaining assets in the trust are transferred tax-free to the beneficiaries.

Qualified Personal Residence Trust (QPRT)

A Qualified Personal Residence Trust (QPRT) is a type of trust used for estate tax planning. The trust owns your personal residence, and you retain the use of it for a certain amount of time. At the end of this period, the home is transferred to your beneficiaries without incurring any estate taxes. This strategy allows you to take advantage of the stepped-up basis and reduce your taxable estate, while still providing for the future of your family.

Spousal Lifetime Access Trust

A spousal lifetime access trust is a type of trust that allows the grantor to transfer assets to their spouse while still retaining control over them. This type of trust can be beneficial when estate tax planning, as it may allow the grantor to reduce their taxable estate while providing financial security for their spouse. The trust provides the grantor with the ability to control how the trust assets are used and when they can be accessed. Additionally, it allows for the grantor's spouse to access these trust assets during their lifetime while also providing asset protection in case of illness or incapacitation.

Qualified Domestic Trust (QDOT)

A Qualified Domestic Trust (QDOT) is an estate tax planning tool used to protect the assets of a non-citizen spouse in cases where the surviving spouse is not a US citizen. QDOTs can be funded with assets from either the deceased spouse or the surviving spouse, and provide protection from estate taxes for both parties. Additionally, a QDOT can be used to protect assets from creditors and provide for future generations. A QDOT allows non-citizen spouses to defer inheritance tax liability until they pass away.

Charitable trusts

A charitable trust is a type of trust that is set up to benefit or assist a charity or charities. There are different types of charitable trusts, including charitable lead trusts and charitable remainder trusts. Charitable trusts can provide tax benefits both during your lifetime and after your death.

Charitable Lead Trust

In a charitable lead trust, a portion of the trust's income is paid to a charitable organization for a specified period of time. After that period of time has ended, the remaining assets of the trust are distributed to the trust beneficiaries (usually family members). The benefit of using a charitable lead trust is that the charitable donations made during the trust's term can be used to offset estate tax liabilities. In addition, any growth in the trust's assets during the term of the trust can also be passed on to the beneficiaries at the end of the trust's term without being subject to estate taxes. For income tax purposes, this trust is also efficient because it lowers the grantor's income taxes.

Charitable Remainder Trust (CRT)

In a CRT, the trust creator (also known as the grantor) transfers assets into the trust and designates one or more individuals as the trust beneficiaries. The beneficiaries receive regular payments from the trust for a specified period of time or for the duration of their lives. After the beneficiaries have received their payments, the remaining assets in the trust are transferred to one or more charitable organizations. One of the key benefits of a CRT is that it can provide income to the trust beneficiaries, while also providing a tax deduction for the trust creator.

Family Limited Partnership (FLP)

A Family Limited Partnership (FLP) is an estate tax planning tool that can be used to reduce taxes and protect assets from creditors. An FLP allows you to transfer assets into the trust and retain control over them while minimizing your estate taxes. With an FLP, you can name yourself as the general partner and provide limited partnership interests to your family members. This strategy allows you to control the assets in the trust while providing for future generations. Additionally, it can provide asset protection in case of illness or incapacity.

Tax Tips: With constant changes in federal estate tax laws, you should meet with your estate attorney, financial advisors and CPA on a regular basis to update your plans and goals.

You might also be interested inHigh Net Worth Individual Accounting Services

Estate tax compliance

It's important to comply with estate tax laws to avoid penalties and interest. Here are some compliance tips to keep the tax law in mind:

  1. Keep Detailed Records: Maintain detailed records of your assets and liabilities, including valuations, to accurately calculate your estate tax liability.

  2. Understand Your Filing Requirements: If your estate is valued at more than the exemption amount, you must file an estate tax return. Failure to file can result in penalties and interest.

  3. Consult with Professional Tax Preparers: Inheritance tax planning and compliance can be complex. Consult with professionals, such as an attorney or accountant, to ensure you're complying with all applicable laws.

What is the purpose of Form 706?

Form 706 is used by the executor of a decedent's estate to determine the estate tax imposed by the Internal Revenue Code. This tax is applied to the total taxable value of an estate, not just to one particular beneficiary's share. The form is also used to calculate the generation-skipping transfer (GST) tax, which is imposed by Chapter 13 of the Internal Revenue Code on direct transfers (transfers to skip persons of interests in property included in the decedent's gross estate).

Form 706 must be filed with the IRS regardless of whether any other federal and state estate taxes are due. It is important to understand your legal obligations when it comes to estate taxes and to consult with a qualified tax professional when preparing the form. Be aware that most tax preparers are familiar with income taxes, but not all tax preparers are familiar with estate taxes.

Who has to file estate tax returns?

For decedents who died, during the year, Form 706 must be filed by the executor of the estate of every U.S. citizen or resident:

  • Whose gross estate, plus adjusted taxable gifts and specific exemption, is more than lifetime gift and estate exemption amount; or

  • Whose executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent's gross estate.

  • Your estate tax return should be prepared by an experienced CPA, not just any preparer.

U.S. Citizens or Residents; Nonresident Noncitizens

File Form 706 is for the estates of decedents who were either U.S. citizens or U.S. residents at the time of death. For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death. A person acquires a domicile by living in a place for even a brief period of time, as long as the person had no intention of moving from that place.

Portability election

An executor can only elect to transfer the Deceased Spousal Unused Exclusion (DSUE) amount to the surviving spouse if Form 706 is filed timely, that is, within 9 months of the decedent's date of death or, if you have received an extension of time to file before the 6-month extension period ends. Any estate that is filing an estate tax return only to elect portability and did not file a gift tax return timely or within the extension provided in Rev. Proc. 2022-32 may seek relief under Regulations section 301.9100-3 to make the portability election.

Penalties: late filing and late payment

Section 6651 provides for penalties for both late filing and late payment unless there is reasonable cause for the delay. The law also provides for penalties for willful attempts to evade payment of tax. The late filing penalty will not be imposed if the taxpayer can show that the failure to file or pay a timely return is due to reasonable cause. The IRS penalties for Form 706 are severer than the penalties associated with Form 1040.

Reasonable-cause determinations

If you receive a notice about penalties after you file Form 706, send an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 706. Explanations attached to the tax return at the time of filing will not be considered.

How H&CO can help

At H&CO, we have extensive experience and tax professionals who can help you plan for and comply with complex estate tax laws and federal and state regulations. Our tax expert CPAs can help plan to transfer your wealth to your family while minimizing the taxes and making the most of your tax credits. We also offer comprehensive services such as income tax preparation, including federal tax return and state tax return preparation. We can also assist with income tax planning services, entity structuring, and technology advisory services.

H&CO's bilingual trusted CPATax Advisors have been helping high net-worth individuals, family offices, clients with significant income, business owners, investors, global families, and foreign individuals with their gift tax needs, for over 30 years. You can talk to our CPAs in one of our offices near you in Miami, Coral Gables, Aventura, or Fort Lauderdale. Our international CPAs are ready to assist you with all your income tax planning and income tax preparation needs.We are ready for a successful engagement on this side of the world!

If you are interested in some of our other global tax services, take a look at our business tax services or international tax services.

Estate Tax Planning and Compliance (5)

About the Author



As a seasoned expert in estate tax planning and compliance, I have extensive experience working with high-net-worth individuals, family offices, and clients with significant assets. I specialize in helping individuals navigate the complexities of estate tax laws, federal and state regulations, and comprehensive financial planning.

In the realm of estate tax planning, it's crucial to understand the profound impact that estate taxes can have on the value of an estate and the financial security of beneficiaries. My expertise lies not only in theoretical knowledge but also in practical, hands-on experience with families in developing effective estate tax plans.

Now, let's delve into the key concepts covered in the provided article:

  1. Estate Tax (Inheritance Tax or Death Tax):

    • Definition: A tax imposed on the transfer of assets from one person to another, often applied upon an individual's death.
    • Progressive Nature: Estate taxes are generally progressive, starting at a lower rate for smaller estates and increasing for larger estates.
    • Components: The gross estate includes various assets such as cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets.
  2. Estate Tax Planning:

    • Definition: The process of minimizing estate taxes on an individual's estate to maximize wealth transfer to heirs or beneficiaries.
    • Strategies: Involves transferring assets into trusts, leveraging deductions and credits, and utilizing various techniques available in the tax code.
  3. Wealth Transfer Planning:

    • Importance: Should be an integral part of income tax planning to ensure efficient wealth transfer.
    • Early Planning: Starting estate planning early is recommended to address potential issues and create a comprehensive plan aligned with personal and business goals.
  4. Estate Tax Planning vs. Income Tax Planning:

    • Estate Tax Planning: Focuses on minimizing federal and state estate taxes, especially significant for larger estates.
    • Income Tax Planning: Aims to minimize income taxes through strategies like maximizing deductions and structuring tax-efficient investments.
  5. Gift Tax Exclusion and Estate Exemptions for 2023:

    • Gift Tax Exclusion: $17,000 per person for 2023, allowing tax-free gifts up to this amount.
    • Lifetime Gift & Estate Exemption: $12.92 million for 2023, enabling tax-free transfers during one's lifetime or at death.
  6. Estate Tax Planning Strategies:

    • Gifting, Lifetime Gift & Estate Exemption, Life Insurance, Trusts, GRAT, QPRT, Spousal Lifetime Access Trust, QDOT, Charitable Trusts, and Family Limited Partnership.
  7. Estate Tax Compliance:

    • Importance: Complying with estate tax laws is crucial to avoid penalties and interest.
    • Tips: Maintain detailed records, understand filing requirements, and consult with professionals for complex compliance.
  8. Form 706 and Filing Requirements:

    • Purpose: Used by the executor to determine estate tax and calculate the GST tax.
    • Filing Requirements: Applicable for U.S. citizens or residents with a gross estate exceeding the exemption amount.
  9. Portability Election and Penalties:

    • Portability: Allows the transfer of DSUE amount to the surviving spouse.
    • Penalties: Late filing and payment penalties apply, with considerations for reasonable cause.
  10. H&CO's Role and Expertise:

    • Services: H&CO offers comprehensive estate tax planning, compliance, income tax preparation, and advisory services.
    • Experience: Over 30 years of experience in assisting high-net-worth individuals and families with their tax needs.

In conclusion, estate tax planning is a multifaceted process that requires careful consideration of various strategies to minimize tax liabilities and ensure a smooth wealth transfer to beneficiaries. It is essential to stay informed about changing tax laws and regularly consult with experienced professionals to update plans and achieve financial goals.

Estate Tax Planning and Compliance (2024)
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