An Overview of Key Tax and Non-Tax Issues in Estate Planning

by: Michael Mueller, Senior Financial Planner

June 30, 2023
Some numbers in this article have been updated to reflect annual indexing, effective January 1, 2024.

A comprehensive estate plan is crucial in helping ensure that your family is taken care of after your passing. Done right, this process minimizes the taxes your estate, and its beneficiaries, are liable for, while also providing greater levels of post-mortem control and asset protection. 

Estate planning is a complex field and many issues must be weighed to build an effective strategy. The majority of these issues can be broken into two distinct categories: tax and non-tax. In this overview, we outline several of these issues and explore the complexities inherent in each.

By considering these issues proactively, individuals can ensure that the people and causes they care about are looked after in perpetuity. Estate planning is a highly personal process. Every family and individual will have their own nuances to navigate, but understanding the following issues ensures you’re well-positioned to make the best decisions for your family’s future. 

This is the first article in a multi-part series from the Smith + Howard Wealth Management team exploring a variety of estate planning topics. View our other articles by visiting our Insights Center today. 

Estate and Gift Tax Issues

When an individual passes away, the assets of their estate may be subject to estate taxes. This tax liability is determined by various factors, including the value of the estate, gifts given during their lifetime, and the way the estate is structured. 

Below, we provide a brief overview of the key tax issues that affect estate planning. 

Lifetime Exemption

Under current legislation, individuals are permitted to pass down $13.61 million without paying federal estate taxes (“lifetime exemption”). Assets passed to spouses are not subject to estate taxes. The $13.61 million lifetime exemption is doubled for married couples and will rise in line with inflation in 2024 and 2025. The first $1 million of assets in an individual’s estate above this threshold are taxed on a graduated scale from 18% up to 40%, with further assets taxed at a flat rate of 40%. 

It’s worth noting that this exemption will be lowered to $5 million, adjusted for inflation, in 2026, as the provisions put in place by the 2017 Tax Cuts and Jobs Act sunset. It’s possible Congress may pass new legislation, but wealthy individuals may wish to consider alternative strategies to distribute their wealth sooner and minimize their overall tax burden. 

Gift Taxes

Gift taxes are paid on an annual basis as an individual gifts money, assets, or property to other individuals. Currently, if an individual gifts another individual more than $18,000 in a year, the gifter must file a gift tax return in addition to the standard federal tax return. Again, this threshold is doubled for married couples, to $36,000. Gifts in excess of this annual exclusion count against the lifetime exemption, and gifts between spouses are unlimited. 

Upon an individual’s death, prior gifts given to individuals above this threshold each year are subtracted from their lifetime exemption. 

For example, if an individual gifted each of their two children $250,000 to help buy their first home, their lifetime exemption upon their death would be $13.146 million, rather than $13.61 million, as they have gifted a total of $500,000, less the annual gift tax tax exclusion of $18,000/person to other individuals. 

Lifetime Estate Tax Exemption$13,610,000
Total of Gifts to Children– ($500,000)
Remaining Lifetime Exemption$13,110,000
Gift Tax Allowances+ ($36,000)
Final Lifetime Exemption$13,146,000

Individuals must weigh many factors when determining whether to gift the assets of their estate or wait until they pass to have them distributed. If an individual owns an asset they believe will appreciate significantly in value in the future, it may be optimal to gift it earlier, which gets the asset’s appreciated future value out of the grantor’s estate, thus lowering potential estate taxes. It is important to note that using this technique is rarely useful unless an individual’s estate is projected to be above the lifetime exemption. This was common advice from advisors when the lifetime exemption was lower. However, every situation is different, and the advice of a qualified tax and investment professional is needed to determine the most advantageous approach.

Generation-Skipping Transfer Taxes (GSTT)

A generation-skipping transfer occurs when an individual makes a gift to an individual 37 ½ years younger than them. This tax is currently set at 40% and the lifetime exemption applies, meaning that only assets above the threshold of $13.61 million are subject to this tax. These taxes are levied in addition to traditional estate taxes. 

One way to pass down assets to multiple generations while avoiding double estate tax on the family is through the use of a Generation Skipping Trust (GST). Essentially, the grantor gifts assets to the GST, using some or all of their lifetime exemption, in exchange for the asset(s) being excluded from their estate. The beneficiaries typically include the grantor’s children and grandchildren. The grantor’s children receive income from the trust during their life, and upon the children’s passing, the assets ultimately flow down to the grandchildren. The flow of the assets to the grandchildren avoids estate tax at the grandchildren’s parents level. 


Using a trust minimizes the tax liability an individual’s estate will have upon their passing. There are many distinct types of trust, and the way an individual chooses to set up their trust is driven by their individual goals and financial situation. 

To learn more about trusts, read this article from Cas L. Pittman, a partner in Smith + Howard’s tax practice: When or Why Should You Use a Trust?

Basis Step-Up

Often, individuals may have assets in their estate with a low cost basis: assets that were bought at a significantly lower price than they are currently valued at. Perhaps an individual bought Apple or Google stock for a dollar a share in the early 2000s and has continued to hold it for twenty years, creating a dramatic appreciation in the value of their holdings. 

When the individual passes on that stock, the beneficiary receives it at the fair market value at the time of the individual’s death. The cost basis of the asset is then stepped up to the asset’s fair market value. 

If an individual’s assets have significantly appreciated over time, it may be beneficial to leave those assets in their estate so that their beneficiaries pay as little capital gains tax as possible on the appreciation. Calculations such as this are a key component of effective estate planning. 

Non-Tax Issues in Estate Planning

Tax issues are certainly important in estate planning, but to many individuals, non-tax issues can be just as pivotal. A robust estate planning process gives individuals post-mortem control over how their assets are distributed after their passing. 

Below are several of the most important non-tax considerations in the estate planning process. 

Appointing a Guardian for Children

A comprehensive will or estate plan should specify an individual that you wish to serve as a guardian for any children under the age of 18, or the age of majority in your state, in the event of your passing. It’s easy for younger people to overlook this, but it’s an item that should be on any estate planning checklist. 

Asset Protection

Effective estate planning, particularly the use of trusts, also enables individuals to secure increased protection for their assets. This applies both in terms of protecting assets from creditors and also for ensuring that your family’s assets are protected after your death. 

If one of your children is in a marriage that ends in divorce, storing money in a trust with your child as a named beneficiary can safeguard the access to that money just to the family member in the event of divorce proceedings. 

Lump Sum Transfers vs. Structured Distributions

If you are hesitant to give your beneficiaries a large sum of money at your death, you can choose instead to set up a trust with structured distribution terms. These can be structured in various ways. One example would be a dynasty trust, which distributes income from the trust to beneficiaries but retains the principal. Another would be attained age distributions, which distribute the trust’s assets to beneficiaries as they reach certain age milestones. 

Smith + Howard Wealth Management: Experienced Estate Planning Professionals

Estate planning is an extremely complex, but important, field. For individuals with significant assets, a simple will is rarely enough. A comprehensive estate plan optimizes your tax burden, ensures your assets are used as intended, and minimizes the stress your family faces when you pass. 

At Smith + Howard Wealth Management, our Financial Advisors have deep expertise in estate planning. By partnering with our expert team, you can develop a thorough plan tailored to your situation that helps you take care of your family for generations to come. 

To learn more, contact an advisor today

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