How Can I Reduce the Overall Amount of Estate Taxes I Pay? 

Also known as “death taxes,” estate taxes are the taxes that must be paid on the transfer of assets upon death. They are separate from income taxes. Both the federal government and Illinois currently levy estate taxes. The Internal Revenue Service (IRS) imposes taxes on assets worth over $13.99 million per person in 2025. This is called the federal estate tax exemption. An individual can make gifts during life using the exemption; any portion of the exemption left over at death will offset estate taxes. Meanwhile, Illinois is one of 12 states and the District of Columbia that impose estate taxes–-on estates worth over four million dollars. Furthermore, federal estate taxes may soon increase as the current federal tax exemption may end in 2025 unless extended, potentially exposing more assets to federal estate taxes. All this being said, there are ways to minimize estate taxes with careful estate planning, and now is the time to do so.  An experienced Naperville, IL attorney can provide advice on how to reduce estate taxes.

How Can Estate Planning Tools Reduce My Estate Taxes?

What most of these strategies have in common is that they lower the overall value of the taxable estate. In this way, transfers made through one or another of these methods allow individuals to give gifts utilizing the exemption during their lifetime, removing assets and appreciation on them, rather than exposing the estate to taxes after the person’s death. 

Irrevocable Life Insurance Trust

An irrevocable life insurance trust, as the name suggests, is an irrevocable trust that holds life insurance. Created during the grantor’s lifetime, it holds permanent life insurance policies and cannot be altered or revoked once created. When the insured person dies, the proceeds of the insurance policy are paid to the trust rather than to the estate. In this way, an irrevocable life insurance trust prevents life insurance proceeds from becoming part of the taxable estate. 

Annual Asset Gifting 

In addition to the exemption, the IRS has an annual gift tax exclusion of $19,000 per year in 2025. It allows individuals to give a gift up to this amount per recipient without incurring taxes or utilizing the exemption. Any gift made in this way reduces the total value of the estate. By giving regular annual exclusion gifts, the donor can significantly reduce a large taxable estate without utilizing gift tax exemption Simultaneously, the value of the grantor’s estate is reduced, exposing the estate to less tax liability upon their passing. 

Family Limited Partnerships

A family limited partnership (FLP) is a type of family “company” that helps protect assets not only from creditors but also from estate taxes by reducing the overall amount of taxes that an estate owes. Technically, an FLP is a partnership among family members in which everyone has joint ownership of family assets as either general or limited partners. Assets placed in an FLP might qualify for what is called a “valuation discount,” which essentially reduces the value of the assets to be transferred for gift tax purposes, therefore optimizing the exemption utilization and the overall size of the taxable estate. 

Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable trust that generates income for the grantor or beneficiaries for a specified period of time while donating a portion (the “remainder”) to charity. When the grantor transfers an asset into this irrevocable trust, this permanently removes the asset from the estate. A CRT can also get a charitable income tax deduction which provides an additional income tax benefit to the grantor. 

Direct Payments for Medical and Educational Expenses

This estate planning method involves paying for another’s medical or tuition expenses directly on their behalf. The key word here is “directly.” In order to avoid taxation issues, the money must be paid directly to the medical or educational institution. The transfer must also comply with the definition of “tuition,” which does not include things like summer camp or private tutoring. Likewise, the transfer of assets to pay for medical expenses can only pay for medical costs like insurance payments and prescription drugs, not expenses such as gym memberships. These payments are excluded from gift taxes and do not count as an annual exclusion gift. At the same time, they reduce the overall value of the taxable estate by giving the money during the grantor’s lifetime. 

Dynasty Trusts

Dynasty trusts are often utilized by high net-worth families to minimize estate and gift taxes while serving as asset protection vehicles. True to their name, dynasty trusts are designed to preserve wealth over generations without paying a tax on asset transfers, including the estate tax. Using a dynasty trust, families can hold on to assets while providing distributions to beneficiaries. Illinois is one of the states that allows dynasty trusts to continue “in perpetuity—” forever. 

Spousal Lifetime Access Trust

A spousal lifetime access trust (SLAT) is an irrevocable trust that allows a spouse to gift assets to another spouse via the trust. This reduces estate taxes because the assets and any further income and appreciation generated on the assets are excluded from the estate for tax purposes. 

Tax-Advantaged Accounts

529 educational accounts, health savings accounts (HSA), and flexible savings accounts (FSAs) are all tax-advantaged accounts. FSAs and HSAs allow an individual to set aside pretax money for medical expenses. A 529 educational plan provides the option to set aside tax-deferred money to pay for certain educational expenses. All of these tax-advantaged accounts provide tax savings which let individuals grow and use the money for important health and educational expenses while removing it from the taxable income. 

Contact Our Naperville, IL Estate Planning Attorney

Our experienced Naperville, IL estate tax planning attorney can help individuals set up their estate plans to minimize estate taxes. If you are wondering how to reduce the impact of estate taxes on your assets when you pass away, contact the Gierach Law Firm. Denise Gierach combines her legal experience with her education as a certified public accountant to advise clients on ways to minimize estate taxes. Call our office today for a consultation at 630-228-9413.