9 Estate Planning Strategies to Consider

Estate planning can help you manage your assets in life, and minimize taxes and legal complications for your beneficiaries after death. Comprehensive strategies typically include wills to distribute assets upon death, trusts to manage assets for beneficiaries, and powers of attorney to designate individuals who can make financial and healthcare decisions on your behalf.

If you want to create an estate plan, a financial advisor can walk you through specific strategies for your needs and goals.

Estate Planning Basics

Estate planning allows you to decide who inherits your assets. This reduces potential disputes and provides financial security for your loved ones by addressing how debts and taxes will be handled. Additionally, it helps protect your assets from unnecessary legal expenses and delays in the probate process .

Key components of estate planning include drafting a will , establishing trusts and designating beneficiaries . A will outlines how assets will be distributed, while trusts can offer more control over the distribution process. Designating beneficiaries on accounts like life insurance can also allow you to bypass probate and distribute assets directly to your intended recipients.

Estate Planning Strategies

Here are nine common estate planning strategies to help you determine how you want to manage and distribute your assets.

1. Create a Will

A will is a foundational document in estate planning. It specifies how assets will be distributed and can help prevent legal disputes among heirs. Without a will, state laws determine the distribution of assets, which might not align with personal wishes. A will can also be used to appoint a legal guardian for minor children.

2. Annual Gifting

Annual gifting allows you to transfer wealth to loved ones without incurring gift tax. Each year, you can give up to a certain amount per person – $18,000 in 2024 – reducing the size of your estate. This strategy can help manage estate taxes and support family members during your lifetime.

3. Establish a Spousal Lifetime Access Trust (SLAT)

A spousal lifetime access trust (SLAT) is an irrevocable trust designed to benefit your spouse while potentially removing assets from your taxable estate. It allows one spouse to make a gift to the trust, which the other spouse can access during their lifetime. This strategy can provide financial security for the beneficiary spouse while also potentially reducing estate taxes.

4. Preserve Step-Up in Basis With a Revocable Trust

A step-up in basis can reduce taxes by adjusting the value of an inherited asset to its market value at the time of the owner’s death. Unlike an irrevocable trust, a revocable trust can preserve the step-up in basis by keeping the assets as part of the person's taxable estate until they are transferred to beneficiaries. This means that beneficiaries inherit assets at their current market value, rather than the original purchase price. This strategy can significantly lower capital gains taxes when assets are eventually sold.

5. Consider a Generation-Skipping Trust

A generation-skipping trust (GST) can transfer wealth directly to grandchildren, bypassing the grantor’s children. This can help minimize estate taxes that would otherwise be incurred if assets were transferred through each generational level. It allows the grantor to provide for grandchildren while ensuring the assets are protected from creditors and potential divorce settlements.

6. Assign Power of Attorney

Power of attorney (POA) is a legal document that grants one person the authority to act on another's behalf. Different types of POA can cover financial matters, healthcare decisions or both. In estate planning a POA enables a trusted individual to manage your affairs if you become incapacitated. This can provide peace of mind, knowing that your interests will be handled according to your wishes even if you are unable to make decisions yourself.

7. Leverage Roth IRAs

Roth IRAs are retirement saving vehicles that can offer significant estate planning benefits. Unlike traditional IRAs, Roth IRAs allow beneficiaries to withdraw funds without incurring income taxes, maximizing the value of an inheritance. Additionally, Roth IRAs do not require minimum distributions during the account holder’s lifetime, enabling the account to grow tax-free over a more extended period. Roth IRAs can thus assist those aiming to leave a substantial, tax-efficient legacy to heirs.

8. Set Up a Grantor Retained Annuity Trust (GRAT)

A grantor retained annuity trust (GRAT) can transfer wealth while minimizing gift taxes. The grantor transfers assets into the trust and receives an annuity for a specified term. If the assets appreciate more than the IRS’s assumed rate, the excess growth passes to the beneficiaries tax-free. GRATs are especially beneficial for high-net-worth individuals looking to reduce their taxable estate and provide a strategic way to pass on wealth to heirs while retaining some income during the trust term.

9. Plan for Medicaid

Medicaid planning can help preserve assets for your heirs while meeting their long-term care needs. Eligibility requires meeting specific income and asset thresholds, so strategies to qualify include asset transfers, trusts and spending down certain assets within legal guidelines.

Additional Considerations

Estate planning doesn't end with the strategies above. Other key considerations include:

• Considering additional insurance options. Insurance plays a key role in estate planning. Life insurance can provide liquidity to cover estate taxes, debts and other expenses, ensuring your beneficiaries are not burdened. Additionally, long-term care insurance can protect your assets from being depleted by healthcare costs.
• Updating beneficiaries. Regularly updating beneficiary designations is crucial to align with your current wishes and life changes. Beneficiary designations on retirement accounts, life insurance policies and other assets supersede wills, so keeping them current ensures the intended recipients inherit the assets. Consider reviewing these designations after major life events such as marriages, divorces and births.
• Planning for digital assets. Digital assets, including online accounts, cryptocurrencies and digital files, require special consideration in estate planning. Create an inventory of digital assets and provide access instructions to a trusted individual. This ensures that digital assets are managed and transferred according to your wishes, preventing loss or unauthorized access.

Bottom Line

Effective estate planning involves a combination of strategies that are tailored to your specific situation. Managing your assets with a will, trust and beneficiary designations can help you safeguard your wealth, and manage it strategically so that you can distribute assets to your beneficiaries with minimal tax and legal complications.

Tips for Estate Planning

• A financial advisor can help you create an estate plan to manage and distribute your assets. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• If you're looking for another strategy to manage taxes on your estate, the gift tax exclusion can allow you to transfer assets to heirs tax-free up to this limit in 2024 .

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