Estate Tax Planning


Estate taxes play a major role in developing and funding an effective estate plan. In Arizona, estate taxes can be imposed on property that is left to an heir when a person passes away. Gift taxes can also be imposed when one person gifts or transfers assets to another while they are still alive. Unfortunately, these types of taxes can cost people an exorbitant amount of time and money.

Reducing taxes is a very important, yet often overlooked component of an estate plan. While estate taxes cannot be complete eliminated, they can be significantly reduced by planning and implementing different strategies in advance. There are a number of sophisticated estate tax planning strategies can maximize the return on a person’s hard-earned investment, and preserve their wealth for future generations.

Living Trusts & AB Trusts

A living trust is a trust designed to avoid probate and provide asset management. This type of trust is created while a person is still alive instead of being created at their death under the terms of their will. A person can also be the trustee of their own living trust and keep full control over all of the property contained within that trust. In instances where a basic living trust does not maximize a couple’s unified credit, an AB Trust is generally recommended instead. AB trusts can reduce federal estate tax for married couples with lots of valuable assets. An Arizona estate planning attorney can help individuals in Phoenix’s east valley decide on which type of trust best suits their circumstances.

Wealth Replacement Strategies

An irrevocable life insurance trust (ILIT), also known as a wealth replacement trust, is a trust funded in part by life insurance policies or proceeds. ILITs can minimize estate taxes and serve as a source of liquid funds to an individual’s estate for the payment of different expenses, such as taxes or debts. When an individual passes away, their assets, as well as their life insurance policies and proceeds, can be subject to federal estate taxes. As a result, a person’s family members may receive less money from the policy than originally planned. An ILIT help a person completely eliminate this problem in some instances. Further, an ILIT can be especially helpful in cases where an estate is subject to estate taxes only because of life insurance policy proceeds.

Other types of wealth replacement strategies include ILITs in combination with charitable gifting strategies as well as Charitable Gift Annuities. Since wealth replacement strategies can become very complex, individuals in Arizona should retain an Arizona estate planning attorney who can help them select an appropriate strategy.

Gifting Strategies

1. Discount Gifting

There are a couple of different discount gifting strategies that can be used to enhance an estate plan,
such as:

  • Family entities
  • Grantor trusts
  • Personal Residence Trusts
  • Generation Skipping Trusts

2. Charitable Gifting

Individuals in Arizona may decide to use charitable gifting as an estate tax planning strategy for one or more of the following reasons:

  • To benefit a specific group or cause.
  • To create a legacy for children and grandchildren to participate in philanthropy.
  • To be personally involved in a specific cause or project.
  • To provide employment to family members.
  • To avoid capital gains tax and receive income.
  • To maximize the benefit to descendants of family wealth.

Further, there are a wide variety of gifting strategies that are available for individuals to choose from. Some of the gifting strategies that can be included in an estate plan are:

  • Outright Bequests
  • Life insurance Gifting
  • Charitable Remainder Trusts
  • Charitable Lead Trusts
  • Charitable Family Entities

An Arizona estate planning attorney can help individuals identify the proper charitable gifting strategy to use within their estate plan.

Multi-Generational Planning: Generation Skipping Trusts and Dynasty Trusts

A generating skip trust moves principal or both principal and income from the Grandparents to Grandchildren or Great-Grandchildren. This process preserves the trust principal, and keeps it under professional management for a longer amount of time in order to allow it to grow. As a result, GST’s are also known as Dynasty Trusts. Once a Trustor’s passes away, the trust then becomes irrevocable. As a result, trust assets are then “asset protected” from claims against the beneficiaries until the income and principal are distributed. In large estates, it can also help to reduce estate taxes by keeping $1,000,000 per trustor from being taxed at the children’s generation.

To lower the effects of the generation skipping tax, transferors in Arizona should contact an Arizona Estate Planning Attorney to learn more about creating a Dynasty Trust. A dynasty trust can allow Arizona residents to pass property through multiple generations without being subjected to the generation-skipping transfer tax. While creating a Dynasty Trust will not always result in significant tax savings for the transferor, it is still very beneficial as it protects future generations from being taxed at every level. As a result, any individual in Arizona with substantial assets should contact an Arizona estate planning attorney to discuss the possibility of setting up a Dynasty trust to protect their legacy.


Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.

Contact The JacksonWhite Estate Team

Call (480) 467-4325 or fill out the form below to schedule a consultation and discuss your best legal options.

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