September 29, 2025
Yet, for high net worth clients, the need for strategic wealth transfer planning remains critical. The estate tax continues to apply at a flat 40% rate above the exemption, and large estates often contain concentrated, illiquid, or appreciating assets that compound tax exposure over time. The increased and permanent exemption provides an opportunity for families to implement planning techniques with greater deliberation, purpose, and flexibility. Whether to reduce tax, protect assets, or facilitate smooth intergenerational transfers (including business continuity), tools such as GRATs, sales to grantor trusts, discount planning, SLATs, and life insurance trusts remain essential.
1. Grantor Retained Annuity Trusts (GRATs)
A Grantor Retained Annuity Trust (GRAT) is a powerful estate planning tool that allows a person to transfer the “growth” of appreciating assets to beneficiaries, estate and gift tax free. The grantor retains a fixed annuity, which may be paid in kind, over the term of the GRAT. If the assets outperform the IRS Section 7520 “hurdle rate” (4.8% for September 2025 and 4.6% for October 2025), the excess growth passes transfer-tax free. Most commonly, GRATs are structured as so-called “zeroed-out” GRATs such that the present value of the annuity payments equals the initial contribution resulting in no taxable gift on formation. This means significant appreciation can be transferred with no exemption use. A GRAT is also a “no lose” proposition because if the GRAT property does not outperform the Section 7520 rate, the property is simply returned to the grantor so they are in no worse of a position had they not set up the GRAT. Moreover, if the grantor dies during the term, the property is included in the grantor’s taxable estate and the property qualifies for a step-up (or down) in tax basis to fair market value.
2 .Installment Sales to Intentionally Defective Grantor Trusts (IDGTs)
For those that have already used their estate tax exemptions or who have certain liquidity or income needs that could be frustrated by a major gift, a “freeze” technique may be beneficial. In this instance, the grantor sells appreciating assets to a grantor trust in exchange for a promissory note, typically structured as interest-only with a balloon principal payment after 9+ years. Because the buying trust is a so-called “grantor” trust, the sale is ignored for income tax purposes, so no capital gain is recognized. Much like a GRAT, if the trust assets appreciate beyond the applicable federal rate (the interest rate required by the tax law and is currently 4.83% for September 2025 and 4.73% for October 2025), the growth inures to the benefit of the trust, estate and gift tax free. Moreover, the grantor bears the income tax consequences of any income earned by the trust (e.g., dividends, interest, and capital gains) such that the grantor’s payment of income taxes acts as an additional tax-free gift to the trust. In a sale like this, it is common that the grantor funds the trust with seed capital of at least 10% of the purchase price. If non-voting stock or LLC interests are sold (see discussion below), the discounted valuation allows the grantor’s taxable estate to be “frozen” at a discounted rate, further enhancing the technique’s success rate.
Comparison to GRATs
Although a sale to an IDGT is similar to a GRAT, there are pros and cons when choosing which technique to implement. While GRATs may be used for closely-held business assets, real estate and the like, valuations will be needed every year during the term of the GRAT. Thus, for many clients, using easy-to-value assets (such as marketable securities) may be more attractive.
With a sale to a grantor trust, only one valuation is needed at the time of the sale. In either case, the current higher interest rate environment can be a drawback, but “rolling” GRATs may be established over multiple years to capture rates during a lower interest rate environment, and installment sale notes could be refinanced if interest rates drop. GRATs require the grantor to survive the term of the trust for the strategy to be effective, with the trade-off of a step-up in basis if the GRAT fails and assets have appreciated. Usually, this means a GRAT is a better strategy for an older person because an installment sale followed soon by a death will result in a loss of step-up in basis with little to no estate tax savings. Lastly, GRATs are not a useful vehicle for generation skipping planning (see discussion below).
3. Valuation Discount Planning
For families with real estate, significant investment portfolios, or controlling interests in closely-held businesses, those assets must be valued at fair market value for estate tax purposes (meaning the value that would be paid by a willing buyer in the open market) in the event of a gift by the owner or the owner’s death. However, if real estate or an investment portfolio is held in a partnership or limited liability company that is structured with non-voting interests, or if an operating business is recapitalized to account for non-voting ownership, then valuation discounts for lack of control and lack of marketability can be utilized for gift and estate tax purposes. These discounts often range from 15%–40%, depending on the structure and asset type. The entity should have a legitimate business purpose and operate in accordance with the standard corporate formalities (e.g., meetings, separate accounts, etc.). If a discounted interest is gifted or sold, the valuation discounts allow for “leveraging” of the estate taxexemptions. Similarly, upon death, making sure the decedent does not own a controlling interest in the applicable asset or business can save significant estate taxes due to valuation discounts that would apply at death.
4. Spousal Lifetime Access Trusts (SLATs)
A spousal lifetime access trust, also known as a SLAT, is an irrevocable trust created by one spouse for the benefit of the other (along with children and grandchildren, as the case may be). Because the beneficiary-spouse can receive distributions, the grantor retains “indirect” access to the trust’s assets. The SLAT can be used in combination with gifts of discounted closely-held assets as well as the sale to an IDGT technique noted above. If both spouses want to establish SLATs, care must be taken to design the trusts around the so-called reciprocal trust doctrine which can risk the effectiveness of the strategy.
5 .Irrevocable Life Insurance Trusts (ILITs)
Where a life insurance policy (or policies) is part of an estate, utilizing a properly designed irrevocable life insurance trust can ensure that the life insurance proceeds are excluded from the decedent’s taxable estate. The specific features of the policy (whether it insures one life or two, whether the policy is permanent or term, etc.) must be considered. For existing policies, it may be beneficial to sell the policy to the ILIT. A properly structured sale avoids the application of the “three-year rule” which would otherwise pull the policy proceeds back into the estate if the insured dies within three years of the transfer. Life insurance policies may be good to hold in a SLAT as well. It is important that a good strategy is in place to pay the premiums as they are due each year (either through annual exclusion gifts, loans, or earnings from other trust assets).
6. Generation-Skipping Transfer (GST) Tax Planning and Asset Protection
The Generation-Skipping Transfer (GST) tax is a separate, additional 40% transfer tax that applies to transfers—either outright or in trust—to “skip persons,” such as grandchildren or more remote descendants. Each individual has a lifetime GST exemption equal to the estate tax exemption—now permanently set at $15 million per person under the new legislation. When properly allocated, GST exemption shields assets from both estate and GST tax for multiple generations. Thus, rather than exposing assets to potential estate tax at each generation, a properly drafted multi-generational or “dynasty” trust can accumulate and distribute wealth to children, grandchildren, great-grandchildren, and beyond.
Many states allow for perpetual trusts. Nebraska, for example, allows a trust document to waive the rule against perpetuities (which requires a trust to terminate no later than 21 years after the death of all the beneficiaries alive when the trust was created).
Therefore, a trust may be established to last perpetually. Importantly, however, these trusts should be drafted to address changes in circumstances. For example, beneficiaries can be given powers of appointment to change certain terms (or terminate the trust) in the future. Also, an independent person like a trust protector can be given the power to “decant” the trust assets to a new trust with more desirable terms, or to grant powers of appointment in the future.
In addition to the tax benefits, GST-exempt trusts also offer powerful asset protection advantages, especially when structured as discretionary spendthrift trusts. Beneficiaries generally cannot be compelled to access or assign their interests, which makes the trust’s assets resistant to claims from divorcing spouses, business creditors, or judgment holders. When multi-generational trusts are combined with (a) recapitalizing businesses into voting and non-voting interests; (b) the SLAT trust design; (c) life insurance ownership; and (d) a sale of some non-voting ownership, the end result can be a powerful multi-generational holding vehicle that is extremely tax efficient, assists with succession goals, and protects and preserves assets for generations.
7. Other Low Hanging Fruit
In addition to the more complex ideas noted above, consideration should also be given to simple ideas that, when combined with other strategies, can save estate taxes. First, annual exclusion gifts can be made each year. Under current law, each person may give up to $19,000 per donee per year, or $38,000 per married couple. Second, 529 accounts can be frontloaded with up to 5 years worth of gifts ($95,000 per donee or $190,000 for a married couple in 2025). Third, direct payments for tuition at educational institutions or direct payments for healthcare expenses (to hospitals and physicians) may be made in an unlimited amount. These ideas are easy to implement and do not have significant risks or complicated features.
Conclusion: Planning in a Post-Sunset World
The “Big Beautiful Bill” may have permanently resolved the uncertainty around the estate and gift tax exemption—but for high-net-worth families, estate planning should remain a high priority. With a $15 million permanent exemption and the fear of sunset removed, planning should be thoughtful but to neglect it may be very costly given the 40% estate tax rate.
What's Next in the Now "Permanent" Era of Estate Planning?
Congress recently passed the “Big Beautiful Bill” that permanently increases the federal estate and gift tax exemptions to $15 million per person, or $30 million for married couples, beginning in 2026. Although no law is truly “permanent” as congressional changes are always possible, for over a decade, the estate tax exemptions have been largely “temporary” with a future sunset. Now, there is certainty.Yet, for high net worth clients, the need for strategic wealth transfer planning remains critical. The estate tax continues to apply at a flat 40% rate above the exemption, and large estates often contain concentrated, illiquid, or appreciating assets that compound tax exposure over time. The increased and permanent exemption provides an opportunity for families to implement planning techniques with greater deliberation, purpose, and flexibility. Whether to reduce tax, protect assets, or facilitate smooth intergenerational transfers (including business continuity), tools such as GRATs, sales to grantor trusts, discount planning, SLATs, and life insurance trusts remain essential.
1. Grantor Retained Annuity Trusts (GRATs)
A Grantor Retained Annuity Trust (GRAT) is a powerful estate planning tool that allows a person to transfer the “growth” of appreciating assets to beneficiaries, estate and gift tax free. The grantor retains a fixed annuity, which may be paid in kind, over the term of the GRAT. If the assets outperform the IRS Section 7520 “hurdle rate” (4.8% for September 2025 and 4.6% for October 2025), the excess growth passes transfer-tax free. Most commonly, GRATs are structured as so-called “zeroed-out” GRATs such that the present value of the annuity payments equals the initial contribution resulting in no taxable gift on formation. This means significant appreciation can be transferred with no exemption use. A GRAT is also a “no lose” proposition because if the GRAT property does not outperform the Section 7520 rate, the property is simply returned to the grantor so they are in no worse of a position had they not set up the GRAT. Moreover, if the grantor dies during the term, the property is included in the grantor’s taxable estate and the property qualifies for a step-up (or down) in tax basis to fair market value.
2 .Installment Sales to Intentionally Defective Grantor Trusts (IDGTs)
For those that have already used their estate tax exemptions or who have certain liquidity or income needs that could be frustrated by a major gift, a “freeze” technique may be beneficial. In this instance, the grantor sells appreciating assets to a grantor trust in exchange for a promissory note, typically structured as interest-only with a balloon principal payment after 9+ years. Because the buying trust is a so-called “grantor” trust, the sale is ignored for income tax purposes, so no capital gain is recognized. Much like a GRAT, if the trust assets appreciate beyond the applicable federal rate (the interest rate required by the tax law and is currently 4.83% for September 2025 and 4.73% for October 2025), the growth inures to the benefit of the trust, estate and gift tax free. Moreover, the grantor bears the income tax consequences of any income earned by the trust (e.g., dividends, interest, and capital gains) such that the grantor’s payment of income taxes acts as an additional tax-free gift to the trust. In a sale like this, it is common that the grantor funds the trust with seed capital of at least 10% of the purchase price. If non-voting stock or LLC interests are sold (see discussion below), the discounted valuation allows the grantor’s taxable estate to be “frozen” at a discounted rate, further enhancing the technique’s success rate.
Comparison to GRATs
Although a sale to an IDGT is similar to a GRAT, there are pros and cons when choosing which technique to implement. While GRATs may be used for closely-held business assets, real estate and the like, valuations will be needed every year during the term of the GRAT. Thus, for many clients, using easy-to-value assets (such as marketable securities) may be more attractive.
With a sale to a grantor trust, only one valuation is needed at the time of the sale. In either case, the current higher interest rate environment can be a drawback, but “rolling” GRATs may be established over multiple years to capture rates during a lower interest rate environment, and installment sale notes could be refinanced if interest rates drop. GRATs require the grantor to survive the term of the trust for the strategy to be effective, with the trade-off of a step-up in basis if the GRAT fails and assets have appreciated. Usually, this means a GRAT is a better strategy for an older person because an installment sale followed soon by a death will result in a loss of step-up in basis with little to no estate tax savings. Lastly, GRATs are not a useful vehicle for generation skipping planning (see discussion below).
3. Valuation Discount Planning
For families with real estate, significant investment portfolios, or controlling interests in closely-held businesses, those assets must be valued at fair market value for estate tax purposes (meaning the value that would be paid by a willing buyer in the open market) in the event of a gift by the owner or the owner’s death. However, if real estate or an investment portfolio is held in a partnership or limited liability company that is structured with non-voting interests, or if an operating business is recapitalized to account for non-voting ownership, then valuation discounts for lack of control and lack of marketability can be utilized for gift and estate tax purposes. These discounts often range from 15%–40%, depending on the structure and asset type. The entity should have a legitimate business purpose and operate in accordance with the standard corporate formalities (e.g., meetings, separate accounts, etc.). If a discounted interest is gifted or sold, the valuation discounts allow for “leveraging” of the estate taxexemptions. Similarly, upon death, making sure the decedent does not own a controlling interest in the applicable asset or business can save significant estate taxes due to valuation discounts that would apply at death.
4. Spousal Lifetime Access Trusts (SLATs)
A spousal lifetime access trust, also known as a SLAT, is an irrevocable trust created by one spouse for the benefit of the other (along with children and grandchildren, as the case may be). Because the beneficiary-spouse can receive distributions, the grantor retains “indirect” access to the trust’s assets. The SLAT can be used in combination with gifts of discounted closely-held assets as well as the sale to an IDGT technique noted above. If both spouses want to establish SLATs, care must be taken to design the trusts around the so-called reciprocal trust doctrine which can risk the effectiveness of the strategy.
5 .Irrevocable Life Insurance Trusts (ILITs)
Where a life insurance policy (or policies) is part of an estate, utilizing a properly designed irrevocable life insurance trust can ensure that the life insurance proceeds are excluded from the decedent’s taxable estate. The specific features of the policy (whether it insures one life or two, whether the policy is permanent or term, etc.) must be considered. For existing policies, it may be beneficial to sell the policy to the ILIT. A properly structured sale avoids the application of the “three-year rule” which would otherwise pull the policy proceeds back into the estate if the insured dies within three years of the transfer. Life insurance policies may be good to hold in a SLAT as well. It is important that a good strategy is in place to pay the premiums as they are due each year (either through annual exclusion gifts, loans, or earnings from other trust assets).
6. Generation-Skipping Transfer (GST) Tax Planning and Asset Protection
The Generation-Skipping Transfer (GST) tax is a separate, additional 40% transfer tax that applies to transfers—either outright or in trust—to “skip persons,” such as grandchildren or more remote descendants. Each individual has a lifetime GST exemption equal to the estate tax exemption—now permanently set at $15 million per person under the new legislation. When properly allocated, GST exemption shields assets from both estate and GST tax for multiple generations. Thus, rather than exposing assets to potential estate tax at each generation, a properly drafted multi-generational or “dynasty” trust can accumulate and distribute wealth to children, grandchildren, great-grandchildren, and beyond.
Many states allow for perpetual trusts. Nebraska, for example, allows a trust document to waive the rule against perpetuities (which requires a trust to terminate no later than 21 years after the death of all the beneficiaries alive when the trust was created).
Therefore, a trust may be established to last perpetually. Importantly, however, these trusts should be drafted to address changes in circumstances. For example, beneficiaries can be given powers of appointment to change certain terms (or terminate the trust) in the future. Also, an independent person like a trust protector can be given the power to “decant” the trust assets to a new trust with more desirable terms, or to grant powers of appointment in the future.
In addition to the tax benefits, GST-exempt trusts also offer powerful asset protection advantages, especially when structured as discretionary spendthrift trusts. Beneficiaries generally cannot be compelled to access or assign their interests, which makes the trust’s assets resistant to claims from divorcing spouses, business creditors, or judgment holders. When multi-generational trusts are combined with (a) recapitalizing businesses into voting and non-voting interests; (b) the SLAT trust design; (c) life insurance ownership; and (d) a sale of some non-voting ownership, the end result can be a powerful multi-generational holding vehicle that is extremely tax efficient, assists with succession goals, and protects and preserves assets for generations.
7. Other Low Hanging Fruit
In addition to the more complex ideas noted above, consideration should also be given to simple ideas that, when combined with other strategies, can save estate taxes. First, annual exclusion gifts can be made each year. Under current law, each person may give up to $19,000 per donee per year, or $38,000 per married couple. Second, 529 accounts can be frontloaded with up to 5 years worth of gifts ($95,000 per donee or $190,000 for a married couple in 2025). Third, direct payments for tuition at educational institutions or direct payments for healthcare expenses (to hospitals and physicians) may be made in an unlimited amount. These ideas are easy to implement and do not have significant risks or complicated features.
Conclusion: Planning in a Post-Sunset World
The “Big Beautiful Bill” may have permanently resolved the uncertainty around the estate and gift tax exemption—but for high-net-worth families, estate planning should remain a high priority. With a $15 million permanent exemption and the fear of sunset removed, planning should be thoughtful but to neglect it may be very costly given the 40% estate tax rate.
Related Attorneys
