estate planning services

7 Estate Tax Planning Strategies



You have worked hard to build your estate. Every purchase, every investment, every financial decision has been made so you can leave an inheritance that is also a legacy. Phelps LaClair, serving Phoenix, Chandler, and Mesa, is a second generation estate planning law firm dedicated to helping you create an estate plan that protects your assets from unforeseen and unexpected circumstances. Here are 7 estate planning strategies that we use with our clients to ensure their assets are protected. 


1. Estate Planning Strategies with Tax Laws in Mind 

Tax laws might not be your first thought when you’re starting to plan your estate. Although, if you want to leave the maximum amount behind, they should be considered. You might be wondering, “Does everyone pay taxes on their estate?” 

While some states have a “death tax” of 20%, Arizona does not have an estate tax. Federal taxes may occur, however. Your estate will be taxed if its assessed value exceeds a certain amount. Currently, in 2021, you will be exempt from federal estate taxes if the value fits in the following:

  • $11.7 million for a single person
  • $23.4 million for a married couple

When your estate exceeds that, it will be subject to a 40% tax rate. That’s a lot to hand over to Uncle Sam when you probably had other plans for your estate. At Phelps LaClair, we can help you create a plan designed to reduce or eliminate death taxes


2. Make Annual Exclusion Gifts

An annual exclusion refers to the dollar amount you’re allowed to transfer to another person tax-free. The gift doesn’t have to be cash—it can include any assets up to $15,000 for a single person, or $30,000 for a married couple filing joint tax returns (in the year 2021).

You are not limited in the number of times you can utilize this exclusion. For example, if you give $15,000 to all three of your children, and to all seven of your grandchildren, the annual exclusion will apply each time. 

Another way to transfer money tax-free, is to cover the education or medical expenses of a loved one. Keep in mind that the institution needs to be paid directly for this to work. If you’re paying for your granddaughter’s doctorate degree (and you want to do it tax-free), you’ll have to write a check to her university. 


3. Create a Revocable Living Trust 

A revocable living trust gives the Trustor (you) more control. In addition, any assets titled in the revocable living trust will avoid lengthy and costly probate administration. This means whoever is appointed as Trustee can immediately begin handling the estate’s affairs and leave the mess of public court aside. This can be a powerful strategy in proper estate planning.     

Discover twelve reasons why you should have a revocable living trust as an Arizona resident.


4. Create an Inheritance Trust

At Phelps LaClair, our team of experienced tax attorneys can guide you through complicated IRS rules, like those on an IRA Inheritance Trust. For many of our clients, an inheritance trust is a great estate planning strategy because it helps them protect their IRA after passing. 

It functions similarly as a revocable living trust, only it’s designed for your IRA. The trust can be named as a beneficiary of your retirement account and you control it during your lifetime. Afterwards, the IRA distributions go to the trust where they can be distributed over an appropriate time period. 

5. Reduce the Size of Your Taxable Estate

Getting creative while estate planning can provide some alternative solutions to the traditional options.  

  • Give gifts—Even in large amounts that accrue gift tax, giving gifts can be beneficial if it makes your estate smaller. This will mean you pay a lower amount in taxes, overall. 
  • Open a private annuity—This estate planning strategy can be helpful for transferring real estate, or other assets, to your heirs. For example, when purchasing a private annuity, you can transfer ownership of your vacation home to your daughter for her unsecured promise to make periodic, fixed payments. You would receive the payments until passing on. Having the value of the vacation home in a private annuity will eliminate estate taxes on it. 


6. Use Family Limited Partnerships

If you have business ventures, or if your family does, you can use Family Limited Partnerships (FLP) as an estate planning strategy. Some families set up an FLP to pass down businesses, properties, or assets. 

For example, Donna has 10 rental properties she doesn’t want included in her estate. This way she can avoid the hefty estate tax. So, Donna sets up a Family Limited Partnership and becomes the general partner. She makes her relatives limited partners. Donna then passes down her wealth to predecessors through gifting shares of the FLP. And she avoids the estate tax.


7. Create a Charitable Trust

If you wish to donate funds to a non-profit, creating a charitable trust could be a good estate tax planning strategy. Usually liquid assets are signed over in a charitable trust, and to make sure your estate gets the tax break, the trust is usually irrevocable. There are two types: charitable remainder trusts and charitable lead trusts. 


Find the Estate Planning Strategies that Work Best for You!

Working with us at Phelps LaClair, you’ll feel confident knowing that our focus is solely on estate planning. Our strategies are carefully designed in order to cut or eliminate your estate tax!  We understand that each person has a unique set of circumstances—and we will help you navigate all the estate planning tools out there to provide you with the best protection for your legacy. Your first consultation is free! 


Serving the Chandler, Mesa, Phoenix, Scottsdale, and Glendale areas of Arizona.


Image used under creative commons license – CC BY 2.0 (2/26/2021) Virginia State Parks (Flikr)



Next webinar
starting soon
Free Webinar