Large estates face significant federal estate tax exposure. The top rate is 40% on amounts exceeding the available exemption. The generation-skipping transfer tax adds another 40% layer for transfers that skip generations. Effective estate planning techniques for large estates focus on transferring wealth at reduced tax cost while maintaining appropriate control and flexibility. Understanding these techniques helps families preserve wealth across generations rather than losing substantial portions to transfer taxes.
The Federal Transfer Tax Framework
The federal estate and gift tax system operates as a unified structure under the Internal Revenue Code. Lifetime gifts and transfers at death are taxed together using a single rate schedule and exemption amount.
The basic exclusion amount determines how much can pass free of estate and gift tax. Under the One Big Beautiful Bill Act signed in July 2025, the basic exclusion amount is set at $15 million per person beginning in 2026, with inflation adjustments for subsequent years. This represents a permanent increase from the temporary doubled exemption that had been scheduled to sunset. For married couples, proper planning allows the use of both spouses’ exemptions, potentially sheltering $30 million or more from estate tax.
Portability allows a surviving spouse to use a deceased spouse’s unused exemption, but this requires filing an estate tax return for the first spouse to die even if no tax is owed. Many families fail to file this return and lose the first spouse’s exemption permanently.
The annual gift tax exclusion allows gifts of $18,000 per recipient in 2024 without using any lifetime exemption. Married couples can give $36,000 per recipient through gift splitting. Direct payments for education tuition or medical expenses made directly to the institution or provider are unlimited and do not count against either the annual exclusion or lifetime exemption.
The generation-skipping transfer tax applies at a flat 40% rate to transfers to skip persons, typically grandchildren or more remote descendants. Each person has a GST exemption equal to the estate tax exemption. Unlike the estate tax exemption, the GST exemption is not portable between spouses. If not used during life or allocated at death, it is lost.
Lifetime Gifting Strategies
Gifts made during life remove both the gifted assets and all future appreciation from the donor’s estate. A gift of $1 million today that grows to $5 million by the donor’s death removes the entire $5 million from the estate, not just the original $1 million.
Annual exclusion gifts provide a simple way to transfer wealth without using any lifetime exemption. A married couple with three children and six grandchildren can give $324,000 per year using annual exclusions alone. Over twenty years, this transfers $6.48 million plus all appreciation on those assets.
Using the lifetime exemption through larger gifts makes sense when the exemption is high and the donor has assets expected to appreciate significantly. The IRS has confirmed through regulations that gifts made using the current exemption will not be clawed back if the exemption later decreases. Families with substantial wealth should consider whether to use the exemption now rather than waiting.
Gifts to irrevocable trusts rather than outright to individuals provide ongoing management, protection from beneficiaries’ creditors, and potential GST benefits. Assets in a properly structured trust can benefit multiple generations without additional transfer tax at each generation.
Dynasty Trusts and GST Planning
Dynasty trusts are designed to last for multiple generations, potentially in perpetuity in states that permit it. Wyoming allows trusts to last 1,000 years. South Dakota permits perpetual duration. By allocating GST exemption to a dynasty trust, the trust becomes fully exempt from generation-skipping transfer tax for its entire duration.
The benefit compounds dramatically over time. Assets in a GST-exempt dynasty trust can grow, be distributed to children, then grandchildren, then great-grandchildren, and beyond, all without any additional transfer tax. A $15 million trust growing at 7% annually would exceed $100 million in 30 years and $400 million in 50 years, all potentially passing without further transfer tax if the trust is properly structured.
GST exemption allocation requires attention because the exemption is not portable. Each spouse must allocate their own exemption. Automatic allocation rules apply in some circumstances, but affirmative allocation on a gift tax return provides certainty. The goal is to create trusts with an inclusion ratio of zero, meaning fully exempt from GST.
Jurisdiction selection matters for dynasty trusts. States without income tax on trust income, such as Wyoming, South Dakota, and Nevada, can provide significant tax savings over the trust’s duration. The ability to add asset protection features through DAPT provisions adds another layer of benefit.
Grantor Retained Annuity Trusts
A grantor retained annuity trust, or GRAT, allows transfer of appreciation to the next generation with minimal or no gift tax. The grantor transfers assets to an irrevocable trust and retains the right to receive annuity payments for a specified term. At the end of the term, remaining assets pass to beneficiaries.
The gift tax value of a GRAT transfer is calculated by subtracting the present value of the retained annuity from the value of assets transferred. The IRS provides tables using the Section 7520 interest rate for this calculation. By structuring the annuity payments appropriately, the gift value can be reduced to near zero.
The planning opportunity arises because the IRS calculation assumes assets will grow at the Section 7520 rate. If assets actually grow faster than this rate, the excess appreciation passes to beneficiaries free of gift tax. With the Section 7520 rate historically low relative to potential investment returns, GRATs can transfer substantial appreciation at no transfer tax cost.
The primary risk is that the grantor must survive the GRAT term. If the grantor dies during the term, some or all of the trust assets are included in the grantor’s estate, potentially eliminating the tax benefit. Short-term rolling GRATs, often structured as a series of two-year trusts, reduce this mortality risk. If one GRAT fails due to the grantor’s death, the others continue.
GRATs are not efficient for GST planning because the remainder interest has near-zero value for GST exemption allocation purposes. They work best for transfers to children or to trusts that will benefit children primarily, with GST planning handled through other vehicles.
Spousal Lifetime Access Trusts
A spousal lifetime access trust, or SLAT, allows one spouse to create an irrevocable trust for the benefit of the other spouse and potentially descendants. The transfer removes assets from the donor spouse’s estate while the beneficiary spouse can receive discretionary distributions from the trust.
This structure provides indirect access to transferred assets. If the beneficiary spouse receives distributions, those funds can support the couple’s lifestyle even though the assets are no longer in either spouse’s estate. The trust can also include provisions benefiting children and grandchildren.
The reciprocal trust doctrine creates risk if both spouses create substantially similar trusts for each other. The IRS may collapse such trusts and treat each spouse as the grantor of the trust benefiting them, eliminating the estate tax benefit. Avoiding this requires making the trusts meaningfully different in terms of trustees, distribution standards, beneficiaries, or timing of creation.
Divorce presents another consideration. If the marriage ends, the former spouse remains a beneficiary of the trust. This risk should be weighed against the tax benefits, particularly for couples in long, stable marriages.
Charitable Planning Techniques
Charitable remainder trusts allow donors to transfer appreciated assets, receive an income stream for life or a term of years, and benefit charity with the remainder. The donor receives an immediate income tax deduction for the present value of the charitable remainder. The trust pays no capital gains tax when it sells appreciated assets, allowing the full value to be reinvested.
Charitable lead trusts work in reverse. Charity receives income for a specified term, with the remainder passing to family members. The gift tax value of the remainder interest is reduced by the value of the charitable income interest. In low interest rate environments, this can transfer substantial value to the next generation at reduced gift tax cost.
Private foundations and donor-advised funds provide immediate income tax deductions and ongoing family involvement in charitable giving. While they do not directly reduce estate tax unless assets pass to charity at death, they can be part of an integrated plan that balances charitable goals with family wealth transfer.
Valuation Discount Strategies
Transfers of interests in family limited partnerships or LLCs may qualify for valuation discounts reflecting minority interest and lack of marketability. A 10% interest in a family entity is worth less than 10% of the underlying asset value because the holder cannot control the entity or easily sell the interest.
These discounts reduce the gift tax value of transferred interests, allowing more value to pass using the same exemption amount. However, the IRS scrutinizes discount transactions aggressively. The entity must have a legitimate business purpose beyond tax savings. Proper structure, documentation, and ongoing operation as a real business entity are essential.
Sales of discounted interests to irrevocable grantor trusts provide another approach. The grantor sells assets to a trust in exchange for a promissory note. Because the trust is a grantor trust for income tax purposes, the sale is ignored and no capital gains tax applies. Appreciation above the note’s interest rate passes to trust beneficiaries free of transfer tax.
Integration with Asset Protection
Wyoming allows trusts that combine estate planning benefits with asset protection features. A Wyoming trust can be structured as a domestic asset protection trust that also serves as a dynasty trust for estate planning purposes. Assets transferred to such a trust are removed from the grantor’s estate for estate tax purposes while also receiving protection from the grantor’s future creditors after the applicable waiting period.
Wyoming’s private family trust company structure allows families to maintain operational control over trust assets across generations without relying on outside institutional trustees. Family members can serve in management roles while the trust still qualifies for both asset protection and estate tax benefits.
Conclusion
Estate planning techniques for large estates focus on using available exemptions efficiently, transferring appreciation out of the estate, and leveraging valuation opportunities where available. Dynasty trusts provide multi-generational benefits when combined with proper GST exemption allocation. GRATs transfer appreciation at minimal gift tax cost. SLATs remove assets from the estate while preserving indirect access. Charitable structures serve both philanthropic goals and tax planning objectives.
The current high exemption levels create meaningful planning opportunities. For guidance on how Wyoming trusts can serve both estate planning and asset protection goals, consider consulting Mark Pierce and Matt Meuli at Wyoming Asset Protection Attorney.