Estate planning is used to control the distribution of assets, protect individuals in case of incapacity and minimize or avoid taxes. Although most people aren’t worried about estate taxes, given the high federal exemption, capital gains taxes are still a concern, according to a recent article, “What is the purpose of estate planning?” from the Pauls Valley Daily Democrat.
Since both death and taxes are inevitable, it’s wise to minimize taxes if you can. Doing so requires planning, much of which can be done through your estate plan.
Capital gains. If you own highly appreciated assets until death, your heirs receive these assets with a “stepped up basis,” avoiding large capital gains typically associated with these assets. This is especially true for real estate and common stock.
Charitable giving. Making philanthropy part of your estate plan. Gifts made during your lifetime generate charitable deductions and, if done properly, reduce income taxes. Gifts made through your will reduce your taxable estate and income tax paid by your estate.
Charitable trusts. Discuss with your estate planning attorney how trusts designed for charitable giving can be utilized to plan for wealth transfer and tax management. These types of trusts provide charitable gifts and tax deductions to the grantor, and depending on the type of trust, also return the principal to the grantor or their heirs.
Charitable Remainder Annuity Trust (CRAT). A fixed sum is paid to the grantor or a beneficiary annually during their lifetime, which is deductible when the trust is funded. The charity receives a donation, the person receives an immediate tax deduction and the annual cash flow accruing to the grantor from the annuity may be higher than the cash flow from a normal investment. The cash return is higher because the annuity includes both income and return of principal.
Charitable Lead Trust (CLT). A CLT is the opposite of the CRAT. The distribution is made annually to the charity, and the remainder goes to the grantor’s designated beneficiaries. The grantor receives an immediate charitable deduction for the value of the annuity payments over their lifetime. Trust income accumulates and isn’t taxed until a later date or after the grantor’s death.
These are just a few examples of how estate planning can merge charitable giving with cash flow and tax planning. The Riddle Firm, PLLC helps people determine which strategies are best for them and ensures that they are aligned with the overall estate plan.
Reference: Pauls Valley Daily Democrat (Aug. 15, 2025) “What is the purpose of estate planning?”