I'm a Financial Planner: Here Are Five Lesser-Known Ways to Avoid Estate Tax

The clock is ticking on the estate and gift tax provisions in the Tax Cuts and Jobs Act, so the sooner you act on removing assets from your estate, the better.

By Bennett Pardue, CFP®, CDFA®, Investment Adviser Representative

published 11 May 2025

in Features

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President Trump’s first months in office have brought a whirlwind of policy developments, and more changes appear to be on the horizon. As trade discussions take a back seat, federal tax policy is moving to the forefront.

The 2017 Tax Cuts and Jobs Act (TCJA) brought many changes to the tax code, one of the most significant being the doubling of the estate and gift tax exemption. For 2025, the individual exemption is $13.99 million and a whopping $27.98 million when combined with a spouse.

This article is written by Bennett Pardue, a Certified Financial Planner and Certified Divorce Financial Analyst. Bennett is a seasoned professional with 17 years of experience in the wealth management industry.

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Unless Congress acts to extend these provisions that are scheduled to sunset at the end of 2025, which is far from certain, the exemptions will be cut in half, throwing a large swath of households into the crosshairs of estate and gift tax.

While much has been written about using trusts and charitable gifting strategies to take advantage of the current exemptions, fewer people are aware of the smaller, lesser-known carve-outs that allow for assets to be removed from an estate — often without even needing to involve an estate planning attorney.

Here are some of the tools to help you augment the current exemptions before they’re potentially reduced.

1. Split gifting

The annual gift tax exclusion sits at $19,000 for 2025. An individual can gift up to $19,000 this year without raiding their lifetime exemption of $13.99 million. However, the IRS permits split gifting between spouses, doubling the annual exclusion to $38,000.

On the surface, this may not seem significant enough to move the needle, but consider the following example: A retired couple with three children and six grandchildren could gift a total of $342,000, all without filing a gift tax return.

If this is done over many years or even decades, the results can pile up and remove a significant chunk from an at-risk estate.

2. 529 superfunding

The tax code allows for the front-loading of five years’ worth of gifting to 529 college savings plans. This means that an individual can make a non-taxable gift of $95,000 (or $190,000 for married couples) in 2025.

Being able to add large sums early, and all at once, can help remove large amounts of otherwise appreciable assets from an estate, helping both the donor(s) and the beneficiary.

Imagine the surprise of our retired couple from above when they learn they can fast-forward the gift of $1.14 million to their grandchildren’s education in a single year, immediately removing the assets from their estate without gift tax implications.

Once a superfunding 529 gift is made, tax-free gifting must be paused for the same beneficiary for five years, then it can be picked up again.

3. Qualified tuition payments

Missed the boat on 529 contributions? The current code allows for qualified payments of any amount made directly to an educational institution for tuition as a tax-exempt gift. The key term here is direct.

Gifts made to the student for purposes of education do not apply and would follow the normal exclusion rules. These tax-exempt gifts can only cover tuition but can be used at a variety of educational institutions, not just higher education.

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With sky-high tuition costs across all levels of education, this can be a significant tool for donors to remove large sums from their estates quickly for the benefit of those they care about. That expensive degree can help in more ways than one.

4. Qualified medical expenses

Much the same as the tuition exclusion, qualified payments made directly to a medical provider on behalf of another person are non-taxable.

These payments must be made direct to the provider but are unlimited.

5. Life insurance

Generally, life insurance death benefits and cash value are counted as part of the gross estate if the insured maintains “incidents of ownership” over the policy. Being listed as the owner, the ability to change beneficiaries or to borrow against the policy would all be considered incidents of ownership at death.

For families with large policies, this can cause an immediate and severe estate tax issue. Transferring ownership to trusted family members, or to a trust (irrevocable life insurance trust, or ILIT), has the effect of removing the policy from the estate of the insured, freeing up precious exemption space.

Beware of the three-year lookback rule when transferring an existing policy. If the transferor dies within three years of the ownership transfer, the proceeds from the policy will count toward the decedent’s estate.

While traditional strategies remain essential, the looming uncertainty of tax code changes will require more families to take a hard look at these underutilized tools to move assets out of their estates.

In this shifting landscape, understanding and leveraging these tools may offer a timely opportunity to lock in today’s favorable terms before they potentially vanish.

This article is not intended as investment, legal or tax advice. Accordingly, any tax information provided in this article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Bennett Pardue offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN). Annuity and insurance products offered through Equitable Network, LLC, which conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, in PR as Equitable Network of Puerto Rico, Inc. AGE- 7850148.1 (4/25)(Exp. 4/29)

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Bennett Pardue is a seasoned professional with 17 years of experience in the wealth management industry. As a CERTIFIED FINANCIAL PLANNER™ and Certified Divorce Financial Analyst®, Bennett excels in guiding clients through significant life transitions, with a particular focus on divorce and retirement planning. His passion for financial planning is evident in his dedication to helping clients achieve their financial goals and navigate complex financial landscapes.