Estate Planning at $5M+ Before the 2026 Exemption Sunset

Estate Planning for High-Net-Worth Individuals: What Actually Matters at $5M+

Estate planning at the $5M+ level is not about writing a will and filing it away. It is about transferring wealth across generations while minimizing the 40% federal estate tax bite, protecting assets from creditors and litigation, and structuring charitable giving to reflect your values without overpaying the IRS. The mechanics are specific, time-sensitive, and nothing like what your accountant discussed with you in your thirties.

The single most urgent issue right now: the Tax Cuts and Jobs Act exemption sunsets on December 31, 2025. If Congress does not act, the per-individual exemption reverts from $13.61 million to roughly $7 million (inflation-adjusted). For a married couple currently shielded by $27.22 million in combined exemptions, that rollback could expose $13+ million to a 40% marginal rate. The planning window is open today. It closes fast.

What the 2026 Exemption Sunset Means for Your Estate Plan

The IRS confirmed the 2024 federal estate and gift tax basic exclusion amount at $13,610,000 per individual under Revenue Procedure 2023-34. The annual gift tax exclusion sits at $18,000 per recipient. Under current law, both numbers shrink materially after December 31, 2025.

The math is stark. A $27M estate for a married couple faces zero federal estate tax today under full portability. After the sunset, the same estate could owe roughly $5.6M in additional federal tax if no planning is done. That is not a rounding error.

The IRS has provided one meaningful protection: Treasury Regulation 20.2010-1(c) confirms that gifts made under the higher exemption will not be "clawed back" if the exemption later decreases. This makes 2024 and 2025 an asymmetric opportunity. You can make large irrevocable gifts now, lock in the higher exemption permanently, and face no additional tax exposure if the sunset occurs.

Vehicles worth executing before year-end 2025 include Spousal Lifetime Access Trusts (SLATs), Irrevocable Life Insurance Trusts (ILITs), and outright gifts to dynasty trusts in favorable jurisdictions. None of these require certainty about what Congress will do. They require a decision.

What Estate Planning Strategies Work Best Above $10 Million?

At $10M+, a basic revocable trust and a pour-over will are table stakes, not a strategy. The real work happens in irrevocable structures designed to move appreciation out of your taxable estate before it compounds further.

Grantor Retained Annuity Trusts (GRATs)

A zeroed-out GRAT under IRC Section 2702 transfers asset appreciation above the IRS Section 7520 rate (approximately 5% in 2024) to heirs with zero gift tax. Place a $5M asset growing at 10% annually into a two-year GRAT, and the excess appreciation above the hurdle rate passes to remainder beneficiaries free of gift and estate tax. If the assets underperform the 7520 rate, they simply return to your estate. No gift tax cost on failure. This asymmetric structure is particularly powerful for pre-IPO equity, private equity interests, or concentrated stock positions with strong near-term catalysts.

Intentional Defective Grantor Trusts (IDGTs)

An IDGT is irrevocable for estate tax purposes but treated as a grantor trust for income tax purposes. You pay income tax on trust earnings personally, which is itself a tax-free gift to the trust beneficiaries. You can also sell appreciated assets to the IDGT in exchange for a promissory note at the AFR (applicable federal rate) without triggering capital gains, because the IRS treats grantor-to-grantor-trust transactions as non-recognition events.

Spousal Lifetime Access Trusts (SLATs)

A SLAT lets you gift assets to an irrevocable trust for your spouse's benefit, removing those assets from your taxable estate while your spouse retains access to distributions. The catch: if your spouse predeceases you, access ends. Reciprocal SLAT structures (where each spouse creates a SLAT for the other) can trigger IRS challenge under the reciprocal trust doctrine, so the trusts must be meaningfully different in structure and timing.

The Difference Between Revocable and Irrevocable Trusts for Estate Planning

This distinction matters more than most people realize, and the trade-offs are not always presented honestly.

A revocable living trust avoids probate and provides privacy (trust documents are not public record, unlike wills). It offers continuity if you become incapacitated. What it does not do: reduce your taxable estate. Assets in a revocable trust are still yours for estate tax purposes. For a $5M estate in a low-tax state, that may be fine. For a $15M estate, it is not a tax strategy.

Irrevocable trusts remove assets from your taxable estate permanently. That permanence is the point, and the price. You give up control. The trustee manages distributions according to the trust document, not your instructions. For advanced estate planning techniques involving GRATs, IDGTs, or dynasty trusts, the irrevocable structure is non-negotiable.

One nuance worth flagging: the step-up in cost basis under IRC Section 1014 resets inherited asset basis to fair market value at the date of death, per IRS Publication 559. A FATFIRE investor holding $10M in appreciated stock with a $1M original basis would owe approximately $2.16M in federal capital gains tax (at the 23.8% NIIT-inclusive rate) if sold during life. Heirs who inherit that same stock pay zero capital gains on the pre-death appreciation.

This creates a counterintuitive planning insight. For assets with very large unrealized gains, gifting them during life (which carries over your original basis) may be less tax-efficient than holding them until death and letting heirs receive the step-up. The interaction between capital gains and estate taxes is a central optimization problem at this level, and the right answer depends on your specific asset mix, estate size, and projected growth rates.

How an ILIT Works for High-Net-Worth Individuals

Life insurance proceeds paid directly to your estate are included in your taxable estate. For a $5M policy on a $20M estate, that inclusion could cost $2M in estate taxes. An Irrevocable Life Insurance Trust solves this cleanly.

The ILIT owns the policy. At death, proceeds flow to the trust, not your estate, keeping them outside the taxable estate entirely. The trust can then provide liquidity to pay estate taxes, fund buyouts of business interests, or distribute to beneficiaries according to your instructions.

The mechanics require attention. You cannot transfer an existing policy to an ILIT without triggering the three-year lookback rule under IRC Section 2035, which pulls the proceeds back into your estate if you die within three years of the transfer. New policies should be applied for and owned by the ILIT from inception. Annual premium payments to the trust require Crummey notices to beneficiaries to qualify as present-interest gifts eligible for the annual exclusion.

For family trust insurance protection, the ILIT remains one of the most cost-efficient estate planning tools available, particularly for estates where liquidity at death is a concern.

Business Succession and Pre-Liquidity Estate Planning

For FATFIRE entrepreneurs, the most impactful estate planning happens before the exit, not after. Once a letter of intent is signed, most valuation-discount strategies are off the table.

Gifting minority interests in an LLC or family limited partnership (FLP) before a sale can support valuation discounts of 15–40% for lack of marketability and lack of control under IRS-accepted methodologies. These discounts must be established well before a sale is imminent to withstand IRS scrutiny under IRC Section 2703. A $20M business exit with a 30% FLP discount applied to a $10M gifted interest could shelter $3M from estate and gift tax, saving up to $1.2M in transfer taxes. That number is only available if the structure predates any identified buyer.

Wealth succession planning strategies for business owners typically involve a coordinated sequence: establish the FLP or LLC, complete a qualified appraisal, gift or sell discounted interests to an IDGT or dynasty trust, then pursue the exit. Each step has a timing dependency. Compressing this into 90 days before closing is a red flag for the IRS and a practical impossibility for quality legal work.

Buy-sell agreements funded by life insurance or cross-purchase arrangements also deserve attention. They establish a clear valuation methodology, prevent unwanted ownership transfers to outside parties, and create liquidity for buyouts at death or disability. For executive wealth management approaches tied to a closely-held business, the buy-sell agreement is often the most important document in the entire estate plan.

Charitable Giving Strategies That Actually Reduce Your Tax Burden

Philanthropy at this level is not just generosity. It is a tax optimization tool that, when structured correctly, can generate an immediate deduction, remove assets from your taxable estate, and provide income for life.

Donor-Advised Funds (DAFs)

According to Fidelity Charitable's 2023 Giving Report, DAFs have become the fastest-growing charitable giving vehicle in the United States. Fidelity Charitable alone granted over $11.2 billion to nonprofits in 2022. The mechanics: contribute cash or appreciated securities to the DAF, take the full fair market value deduction in the year of contribution, and recommend grants to qualified charities over time. Contributing appreciated stock avoids capital gains entirely while the deduction is based on current market value.

Charitable Remainder Trusts (CRTs)

Research published in the Journal of Financial Planning indicates that CRTs provide high-net-worth donors with an immediate partial charitable deduction, a stream of income for life or a term of years, and removal of the contributed asset from the taxable estate. CRTs are particularly effective for highly appreciated, low-basis assets. Contribute $5M in stock with a $500K basis to a CRT, avoid the capital gains tax on sale inside the trust, receive an income stream, and remove the asset from your estate. The charity receives the remainder at the end of the trust term.

Private Foundations vs. DAFs

Private foundations offer more control and family involvement but carry a 1.39% excise tax on net investment income, mandatory 5% annual distribution requirements, and significant administrative overhead. For most FATFIRE donors giving under $50M, a DAF provides comparable flexibility with far less complexity. Foundations make sense when family governance, named legacy, or programmatic grantmaking are priorities.

Dynasty Trusts and Multi-Generational Wealth Transfer

The rule against perpetuities used to cap trust duration at roughly 90 years in most states. South Dakota, Nevada, and Delaware abolished it. A dynasty trust established in one of these jurisdictions can hold assets for 1,000 years or more under current state law, compounding wealth across generations without a transfer tax event at each death.

According to the American Bar Association's Section of Real Property, Trust and Estate Law, these states combine no state income tax on trust income, strong asset protection statutes, and flexible directed trust laws that allow separation of investment management from distribution decisions. The grantor and beneficiaries do not need to be residents of the trust's situs state.

The math on dynasty trusts is compelling. A $10M contribution to a South Dakota dynasty trust today, growing at 6% annually, reaches approximately $57M in 30 years. Without the trust, each generational transfer at death could trigger a 40% estate tax on the excess above the exemption. Inside the dynasty trust, that compounding occurs without interruption across generations.

For setting up a trust fund with multi-generational intent, jurisdiction selection is the first decision, not an afterthought.

International Assets, Foreign Trusts, and FATCA Compliance

If you hold assets in multiple countries, your estate plan has a compliance dimension that most domestic attorneys are not equipped to handle alone.

Under FATCA (IRC Sections 1471–1474), U.S. persons with foreign financial assets exceeding $50,000 (single filer) or $100,000 (married filing jointly) at year-end must report those assets on Form 8938. Foreign trusts with U.S. beneficiaries trigger additional reporting obligations under IRC Sections 6048 and 6677. The IRS imposes penalties up to 35% of the gross value of trust assets for non-compliance. These are not theoretical risks.

For estate planning considerations for green card holders and U.S. citizens with international exposure, the planning challenges multiply. Foreign inheritance laws may not recognize U.S. trust structures. Forced heirship rules in civil law countries (France, Spain, much of Latin America) can override your trust documents for locally-sited assets. Treaty positions vary by country and asset type.

The practical approach: identify every jurisdiction where you hold real property, financial accounts, or business interests. Map the applicable inheritance and tax laws for each. Then build a coordinated structure that works across all of them, not a U.S.-centric plan that ignores the foreign pieces.

The Step-Up Basis Strategy Most High-Net-Worth Investors Overlook

The step-up in cost basis under IRC Section 1014 is one of the most valuable tools in a high-net-worth estate plan, and it is frequently underweighted in planning conversations dominated by trust structures and exemption math.

IRS Publication 559 explains the mechanics: when a beneficiary inherits an asset, the cost basis resets to the fair market value at the date of death. Pre-death appreciation disappears for capital gains purposes. For a FATFIRE investor with a concentrated position, this can represent millions in eliminated tax liability.

The planning implication cuts against conventional gifting advice. If you gift appreciated stock to your children during your lifetime, they inherit your original basis. If they later sell, they owe capital gains on the full appreciation. If you hold the same stock until death, they inherit it at the stepped-up basis and owe nothing on the pre-death gain.

This does not mean you should never gift appreciated assets. GRATs, charitable contributions of appreciated stock to DAFs, and installment sales to IDGTs all have their place. But the decision to gift versus hold must account for the basis step-up, particularly for assets with large embedded gains relative to their estate tax exposure. Start organizing your estate planning information with a clear picture of basis across your entire portfolio before making gifting decisions.

Building Your Estate Planning Team and Keeping Documents Current

The right team at this level includes an estate planning attorney with specific experience in irrevocable trust structures (not just wills and basic revocable trusts), a CPA who understands the interaction between income tax and transfer tax, and a financial advisor who can model the impact of different strategies on your overall portfolio. These three need to communicate with each other. Siloed advice produces gaps.

Essential estate planning documents for a $5M+ estate go well beyond a will and a healthcare directive. A complete plan typically includes a revocable living trust, one or more irrevocable trusts (ILIT, IDGT, SLAT, or dynasty trust depending on your situation), durable power of attorney, healthcare power of attorney, living will, HIPAA authorization, and a detailed asset inventory with account numbers, locations, and beneficiary designations.

Beneficiary designations on retirement accounts and life insurance policies override your will and trust documents. A trust carefully drafted to protect a spendthrift beneficiary is irrelevant if the IRA beneficiary designation names that person outright. Review every designation after any major life event: marriage, divorce, birth, death, or significant change in a beneficiary's circumstances.

Use an estate planning worksheet to map your assets, their current basis, beneficiary designations, and how each fits into your overall transfer strategy. Update it annually. Your attorney needs current information to give you current advice.

Creative ways to structure your legacy beyond outright bequests include incentive trusts (distributions tied to education, employment, or other milestones), staggered distribution trusts (releasing funds at ages 25, 30, and 35 rather than all at once), and early inheritance strategies that transfer wealth during your lifetime when you can see its impact. Each approach has different tax and control implications, and the right choice depends on your beneficiaries' circumstances as much as your own.

References

• Internal Revenue Service -- "Estate and Gift Taxes -- IRC Sections 2001–2210"
• Internal Revenue Service -- "IRS Revenue Procedure 2023-34: 2024 Inflation Adjustments" (2023)
• Internal Revenue Service -- "IRC Section 2702 -- Special Valuation Rules for Transfers in Trust (GRATs)"
• Internal Revenue Service -- "IRC Section 2056 -- Marital Deduction and Portability (IRC Section 2010(c)(5))"
• Tax Cuts and Jobs Act (Public Law 115-97) -- "Tax Cuts and Jobs Act of 2017, Section 11061 -- Doubling of Estate and Gift Tax Exemption" (2017)
• American Bar Association -- "ABA Section of Real Property, Trust and Estate Law -- Dynasty Trusts and Perpetuities Reform"
• Internal Revenue Service -- "Foreign Account Tax Compliance Act (FATCA) -- IRC Sections 1471–1474 and Form 8938 Filing Requirements"
• Fidelity Charitable -- "2023 Giving Report" (2023)
• Journal of Financial Planning -- "Optimal Charitable Giving Strategies for High-Net-Worth Individuals"
• Internal Revenue Service -- "IRS Publication 559 -- Survivors, Executors, and Administrators" (2023)