Six estate tax planning strategies Kansas families use to reduce federal transfer tax exposure, what each accomplishes, and how to figure out which combination fits your situation.
For Kansas families whose estates approach or exceed the federal estate tax exemption, planning strategies that reduce the tax cost of transferring wealth can save significant amounts. Kansas itself doesn’t have a state estate tax, which simplifies the planning compared to states that do. The federal estate tax exemption is generous but scheduled to change, which makes current planning particularly relevant. Several specific strategies, used in combination, can substantially reduce the federal tax owed on transfers at death.
For families well below the federal exemption, most of this complexity isn’t worth the cost. The right level of estate tax planning matches the actual exposure rather than imposing sophisticated structures on situations that don’t justify them.
After 27 years and 5,423 trusts drafted at the team at The Eastman Law Firm, we’ve worked with Kansas families across the estate tax exposure spectrum. Here are the strategies that work.
1. Annual Exclusion Gifting
The federal annual gift tax exclusion allows giving a specified amount each year to any number of recipients without using any of the lifetime exemption. Each spouse can give the annual amount separately, doubling the effective gift to each recipient for married couples. Over years, consistent annual gifting can transfer significant wealth out of the eventual taxable estate without using the lifetime gift and estate tax exemption.
The strategy works best for families with multiple children, grandchildren, or other intended beneficiaries. A couple with four children and eight grandchildren can transfer substantial amounts annually under the exclusion. Sustained over years, the cumulative effect on the eventual estate can be significant.
The strategy doesn’t use the lifetime exemption, which means the lifetime exemption remains available for larger transfers. Annual exclusion gifts are also free of gift tax filing requirements for most situations.
2. Lifetime Exemption Usage
The federal gift and estate tax exemption is high under current law but scheduled to decrease unless legislation extends it. Families with estates that approach or exceed the current exemption can use lifetime gifts to lock in transfers at the current higher exemption before any reduction takes effect.
The mechanics work because the federal exemption is unified across gift and estate tax. Amounts used for lifetime gifts reduce the exemption available at death, but they also transfer the appreciation on those gifted assets out of the estate. If a family gifts assets worth a specific amount today, future appreciation on those assets isn’t in the estate at death.
The strategy fits families with estates that exceed (or are likely to exceed) the eventual exemption. Families well below the exemption don’t benefit from using it during life because there’s no tax to save.
3. Irrevocable Life Insurance Trust (ILIT)
An irrevocable life insurance trust holds life insurance policies outside the insured’s taxable estate. At the insured’s death, the life insurance proceeds pass to the trust’s beneficiaries without being included in the insured’s estate for federal estate tax purposes.
The structure makes sense when the insured’s estate is likely to exceed the federal exemption and life insurance would otherwise add to that estate. Without the ILIT, life insurance proceeds owned by the insured are includible in the estate and subject to estate tax. With the ILIT, the proceeds pass to beneficiaries free of estate tax.
A specific timing rule applies: life insurance transferred into an ILIT within three years of death is included in the insured’s estate anyway. This three-year rule means ILIT planning works best when started before any near-term mortality concern.
4. Grantor Retained Annuity Trust (GRAT)
A GRAT is an irrevocable trust to which the grantor transfers assets in exchange for a fixed annuity payment for a specified term. If the assets appreciate faster than the IRS-prescribed interest rate during the trust term, the excess appreciation passes to the trust’s beneficiaries free of gift and estate tax.
The strategy works best for assets expected to appreciate significantly: pre-IPO stock, business interests with growth potential, real estate in appreciating markets, or other concentrated assets with growth prospects. If the assets don’t appreciate as expected, the GRAT simply pays back the grantor with the annuity payments and accomplishes nothing harmful. If they appreciate substantially, the excess transfers without gift tax cost.
GRAT strategies often work in series (multiple short-term GRATs over years) to capture appreciation while limiting downside risk.
5. Family Limited Partnership or Family LLC
A family limited partnership (FLP) or family LLC consolidates family assets into an entity owned by family members. The senior generation typically holds general partner interests with management control; junior family members hold limited partner interests with economic rights but limited control.
The structure can provide several estate tax benefits: gifted limited partnership interests may qualify for valuation discounts (because limited partners have limited control and limited marketability), which reduces the gift tax value of transfers. The senior generation retains management control during their lifetime while gradually transferring ownership.
The structure also provides asset protection benefits and centralized family asset management. The valuation discounts have come under IRS scrutiny over the years; proper structure and substance are essential to support the discount claims.
6. Charitable Giving Strategies
For families with charitable intent, several structures combine philanthropy with estate tax planning. The basic options:
Direct charitable bequests. Assets left to qualified charities at death are deductible from the taxable estate, dollar for dollar.
Charitable remainder trusts (CRTs). The grantor transfers assets to an irrevocable trust that pays income to non-charitable beneficiaries for a term or for life, with the remainder going to charity. The grantor gets an income tax deduction for the present value of the charitable remainder, avoids capital gains tax on the contributed assets, and removes the assets from the taxable estate.
Charitable lead trusts (CLTs). The reverse of a CRT. The trust pays income to charity for a term, with the remainder going to non-charitable beneficiaries. Useful when the family wants to transfer assets to heirs after a period of charitable distribution.
Donor-advised funds. Simpler structure than trusts; the family contributes to a fund managed by a charitable sponsor and directs grants to qualified charities over time.
Qualified Charitable Distributions (QCDs) from IRAs. Direct transfers from an IRA to a qualified charity satisfy required minimum distributions without including the distribution in taxable income.
How to Choose the Right Strategies
For Kansas families, the right combination depends on several factors:
Current estate value relative to federal exemption. Families well below the exemption don’t need sophisticated estate tax planning; basic estate planning is enough. Families approaching or exceeding the exemption benefit from specific strategies.
Anticipated growth. Families whose estates are expected to grow significantly (business owners with high-growth businesses, families with concentrated stock in appreciating companies) benefit from strategies that transfer appreciation out of the estate.
Family situation. Multiple beneficiaries make annual exclusion gifting more effective. Charitable intent makes charitable strategies relevant. Business interests make valuation-discount strategies relevant.
Time horizon. Strategies with multi-year horizons (GRAT series, ILIT planning, lifetime exemption use during favorable periods) work best when started early.
Liquidity needs. Strategies that lock up assets need to be balanced with the family’s liquidity needs during life.
For broader context, see our discussion of how tax and estate planning integrate. Our tax and financial planning work addresses estate tax planning when the family’s situation warrants it.
What the Free Call Is For
The 15-minute call sorts out whether your situation calls for estate tax planning and which strategies might fit. You describe your circumstances. Gary tells you what’s worth pursuing and what would just add complexity without benefit.
By the end of the call, you’ll know more about your situation than you did when you picked up the phone. Whether you hire us or not.
Wondering whether estate tax planning would benefit your family?
Schedule a free 15-minute call with Gary. Call (913) 908-9113 or request a callback. We’ll help you figure out whether your situation warrants planning and which strategies would fit.
Frequently Asked Questions
How can estate taxes be minimized?
Several specific strategies reduce federal estate tax exposure: annual exclusion gifting to multiple beneficiaries over years, lifetime use of the gift and estate tax exemption (particularly relevant before potential exemption reductions), irrevocable life insurance trusts that hold life insurance outside the estate, grantor retained annuity trusts for appreciating assets, family limited partnerships or LLCs with potential valuation discounts, and charitable giving strategies that reduce the taxable estate while serving philanthropic goals. The right combination depends on the family’s estate value, anticipated growth, beneficiaries, and goals. Most strategies work best when started years before they’re needed, which is why estate tax planning is more effective during quiet planning periods than near transition events.
How do the wealthy avoid estate tax?
High-net-worth families use combinations of the strategies above, often layered for cumulative effect. Common combinations include using the full lifetime gift and estate tax exemption during life (locking in current exemption levels), funding ILITs to remove life insurance from the estate, using GRATs in series to transfer appreciation on high-growth assets, holding family wealth in family limited partnerships or LLCs for valuation discounts, making annual exclusion gifts to multiple beneficiaries over decades, and using charitable structures (CRTs, CLTs, private foundations) for combined philanthropic and tax benefits. Sophisticated planning may also involve generation-skipping transfer tax planning to preserve wealth across multiple generations. The strategies are legal and well-established; they require expertise to structure and maintain properly.
How much can you gift without being taxed?
Federal law provides two main mechanisms. The annual gift tax exclusion lets you give each recipient a specified amount per year (the 2026 figure is $19,000 per recipient, indexed for inflation) without using any of your lifetime exemption. Married couples can combine their exclusions, effectively doubling the amount per recipient. Above the annual exclusion, gifts use your lifetime gift and estate tax exemption (currently high but scheduled to change). Gifts within the lifetime exemption don’t trigger immediate gift tax but reduce the exemption available at death. Some gifts don’t count against either limit, including direct payments to medical providers for someone’s medical care and direct payments to educational institutions for someone’s tuition (under specific conditions).
What is the 3-year rule for life insurance trusts?
Under federal estate tax law (IRC Section 2035), life insurance policies transferred to an irrevocable life insurance trust within three years of the insured’s death are included in the insured’s taxable estate anyway. The rule prevents last-minute transfers to escape estate tax. The practical implication: ILIT planning works best when started before any near-term mortality concern. New policies acquired by the ILIT directly (rather than transferred from the insured) aren’t subject to the three-year rule, which is one reason ILITs often acquire new policies rather than receiving transfers of existing ones. For families considering ILIT planning, the three-year clock is one reason to act sooner rather than later.
What is portability of the estate tax exemption?
Portability allows a surviving spouse to use the deceased spouse’s unused federal estate tax exemption. If the first spouse to die doesn’t use the full exemption, the unused portion (the “deceased spousal unused exclusion” or DSUE) can be added to the surviving spouse’s exemption, effectively combining the two exemptions for the surviving spouse’s eventual estate. To preserve portability, the executor must file a federal estate tax return (Form 706) for the first spouse to die within nine months of death (or extended deadline), even if no estate tax is due. Without the timely filing, the unused exemption is lost. For couples whose combined estate may approach or exceed the federal exemption, portability filings matter even when the first spouse to die has a small estate.
This post is provided for informational purposes only and reflects our understanding of applicable law at the time of writing. Federal and state tax provisions, exemption amounts, IRS rulings, Kansas statutes, and procedural timelines change over time, sometimes substantially. Nothing in this post constitutes legal or tax advice for your specific situation. Estate planning, tax, and probate decisions should be made with current, verified information and the guidance of a qualified attorney and tax professional familiar with your circumstances.