How can you move assets to future generations with the least tax?

Transferring wealth to future generations is a sensitive task. You want to be attentive to how it impacts your beneficiaries’ lives, family dynamics and management of the family assets. Also of critical importance for many families is minimizing the taxes to be paid when the transfers occur.

For most families, moving assets to future generations with the least tax is a process that starts with foundational elements and moves to more advanced options. What follows is an outline of that progressive toolkit to help you know the steps you need to take and those you may consider, balancing the level of complexity with the tax-saving opportunities.

1. Complete or update your foundational estate plan

First, make sure you have a foundational estate plan in place and up to date. This includes a will, revocable trust, powers of attorney and beneficiary designations for your retirement accounts and life insurance.

A well-drafted estate plan should incorporate estate and generation-skipping transfer (GST) tax planning to limit taxes when you die. It should also be designed to pass your assets to your heirs in a tax-efficient manner.

For married couples, this typically means the creation of two or more trusts on the death of the first spouse to eliminate any estate taxes at that time and ensure both spouses’ estate and GST tax exemptions are used to their full benefit.

A tax-efficient estate plan also should incorporate tax planning for when assets pass to children. This often involves creating GST tax exempt trusts (using the GST tax exemption amount of $13.99 million per individual in 2025) that can hold assets for multiple generations without being subject to estate or GST tax as long as the assets remain in trust.

2. Make annual exclusion gifts

Once you have completed your foundational estate plan, the next step is to make annual exclusion gifts. For 2025, the annual gift tax exclusion allows you to give up to $19,000 ($38,000 for married couples) to an unlimited number of individuals. You can give more than that amount without penalty, but you will need to file a gift tax return and use a portion of your gift and estate tax exemption amount. A couple with two children and three grandchildren, for example, would be able to make annual exclusions to each of them for a total $190,000 of tax-free gifts each year. You also can make unlimited gifts for medical and tuition payments if they are paid directly to the provider.

A regular practice of making annual exclusion gifts each year can be a simple, yet powerful, tax-saving technique. These gifts can be made outright, but also may be made in trust if certain requirements are followed.

3. Place life insurance in an irrevocable trust

If you have life insurance, you might want to place it in a trust, commonly referred to as an ILIT, or irrevocable life insurance trust. This can keep the life insurance proceeds out of your estate for tax purposes, while providing your beneficiaries with a tax-free distribution upon your death.

If you don’t have life insurance currently but believe there will be liquidity concerns after your death (for example, to pay estate taxes) you can create an irrevocable trust to purchase life insurance to meet those needs. This, again, keeps the insurance proceeds out of your estate, while leaving the funds immediately available following your death.

With an irrevocable life insurance trust, the appointed trustee is responsible for managing the policy, ensuring that premiums are paid and making distributions when appropriate. Care is necessary in setting up the trust and placing policies into the trust, so make sure you are working with an experienced attorney.

4. Use your lifetime exemption amounts

Your next step is to consider making larger gifts. In 2025, an individual can transfer a total of $13.99 million at death or during their lifetime free from federal gift and estate taxes. A married couple can transfer twice that amount—$27.98 million—free of tax. 

By using your exemption now, you can transfer assets without tax that could be subject to tax in the future. You also push the future appreciation in the value of the assets out of your estate and into the hands of your beneficiaries.

These gifts can be made outright, but may also be made in GST tax exempt trusts, which use your exemption for the GST tax and keep the trust property from being subject to tax for multiple generations. For married couples, spousal lifetime access trusts (SLATs) can be a solution to use your exemption amounts while preserving access for your spouse during their lifetime.

With larger gifts, you want to evaluate them from multiple perspectives. You need to balance the income tax impact with the potential estate tax savings. You also want to take care in structuring how your beneficiaries ultimately have access to the funds. Luckily, with trusts, you can address many of these concerns while taking advantage of the tax saving opportunities.

5. Define your philanthropic goals

Are you giving to charity currently? Is there an impact you would like to make in your communities now or in the future? Are there organizations you would like to support? If your answer to any of these questions is yes, tax savings opportunities await you.

By defining your philanthropic goals, you typically open up a range of options that combine fulfilling them with saving taxes in passing assets to the next generation. This can involve leaving your IRA to charity rather than your children to avoid the income taxes that would otherwise come with distributions after you die. It also can involve charitable lead or remainder trusts, which can pass assets to charity and your heirs in a very tax efficient manner.

6. Advanced estate planning

This penultimate step is often combined with using your exemption amounts.

Depending on your circumstances and comfort with complex planning, there are a range of specialized planning techniques to move assets to future generations with minimal tax. These include options to:

• Freeze the value of assets in a trust and pass the appreciation of those assets, free of gift or estate taxes, to your beneficiaries. This can be accomplished through a Grantor Retained Annuity Trust (GRAT) or a sale to an Intentionally Defective Grantor Trust (IDGT).
• Give your beneficiaries portions of assets that can be subject to valuation discounts for lack of marketability or control, such as interests in a family limited partnership or real property (vs. gifting the entire value of the asset at once).
• Give current or future annuity or actuarial interests in property to your beneficiaries at a discounted value, such as through a Charitable Remainder Trust (CRT), or Qualified Personal Residence Trust (QPRT).

These types of strategies often can be combined to maximize the tax-efficiency of your transfers even further.

7. Planning within existing trusts

Finally, if you make it this far, your family is well on your way to moving assets to future generations with the least tax impact. But there continue to be steps you can take after your planning is in place. If you have existing irrevocable trusts set up as part of your estate planning, don’t ignore them. Consider:

• Reviewing state income tax. Non-grantor trusts can pay state income taxes as high as 12 or 13% (California), so it is smart to investigate ways to reduce that burden. Check the state of residence of the beneficiaries and the trustees, as well as where the trust is administered. Moving the trust, and trustee, to a state with no or low state income tax is one way to reduce annual state taxes.
• Being an active cost basis planner. Grantor trusts allow the grantor to substitute assets in and out of the trust if they have the same market value. But they don’t have to have the same income tax cost basis. For efficient tax planning, move high-basis assets into your irrevocable trust and keep low-basis assets in your estate. Upon death, the low-basis assets will receive a step-up in income tax basis to current value for the estate beneficiaries, so income taxes are minimized.

Maximizing transfer tax planning. To avoid increasing your beneficiaries’ estates through distributions from a trust, consider translating distributions into a loan or have the trust make purchases for the beneficiaries. The result is the beneficiaries receive assets for their needs, the value of the trust is not diminished, and the beneficiaries’ estate is not increased.