Sometimes a serious illness or health scare prompts people to take a hard look at their estate planning. Frequently, this is when the desire to minimize the impact of estate/inheritance taxes becomes a priority.

Sometimes a serious illness or health scare prompts people to take a hard look at their estate planning. Frequently, this is when the desire to minimize the impact of estate/inheritance taxes becomes a priority. Although some of the best estate planning techniques should be put in place long before someone dies, there are a few ideas in the estate planner’s toolkit that can help reduce the tax bill.

Update Old Documents 

Significant changes in the federal estate tax law made a few years ago greatly reduced the need to create a trust on the death of the first member of a couple. Under the prior law, for most married couples, no tax would arise on the first death, but the need to tie up a portion of the survivor’s inheritance in a trust just to save tax on the second death has been largely eliminated. Documents prepared under the older law should be reviewed and updated as needed to make sure that any desired benefits of the new law are taken into account.

Beneficiary Reviews 

Many people are surprised to discover that the beneficiary designation on file for life insurance, annuities, and retirement plans (including IRAs), will supersede whatever is provided in a will regarding these accounts. It’s easy and inexpensive to make sure that all beneficiary designations are up-to-date. This can avoid aggravation later, or worse, once it’s too late to make changes.


Annual gifts of up to $15,000 ($30,000, if made jointly with a spouse) per recipient are exemptible from tax reporting. People with large families can save significant taxes by taking advantage of this provision. Payments made directly to the providers of health or educational services on behalf of another person are also excluded from gift tax consequences. This can allow grandparents to pay tuition for their grandchildren as a way of reducing the size of their taxable estate. It’s also possible to save taxes by giving appreciated property to a family member in a lower tax bracket, but property which has declined in value should normally be sold before using it to fund a gift. Some of the tax rules concerning gifting are complicated, so you should consult your attorney or accountant before making a large gift.

Estate Strategies for Shortened Life Expectancy (“Bet-to-Die” Strategies)

Some strategies should only be attempted with the guidance of an experienced attorney. A few of the strategies used in complex estate planning perform unusually well in the case of someone whose life expectancy is shorter than normal.

Private Annuity 

Typically, these are designed for the older person to transfer a sum of money or property to a family member who agrees to pay the older person a monthly income for the rest of their life. The rules under IRC §7520 will prevent someone from using this if he/she has been diagnosed with a terminal illness.

Self-Cancelling Installment Note (SCIN) 

These can resemble a Private Annuity in that a sum of money or property is transferred to someone who agrees to pay a note which ends at the seller’s death. Since the note is cancelled at the seller’s death, the unpaid balance is not included in the seller’s estate. A premium is required to be added to the purchase price or interest rate to account for the mortality feature. Importantly, the IRS decided in GCM 39503 that the restrictions of IRC §7520 regarding terminal illnesses that apply to annuities and other instruments, do not apply to SCINs.

Charitable Lead Annuity Trust (CLAT)

This strategy involves creating a trust which provides an annual stream of income to a charity. Normally, upon the grantor’s death, the trust ends and the remaining principal is distributed to the grantor’s heirs. The assets are removed from the grantor’s estate, and the income tax consequences of the trust are determined when the trust is created. The trust is also subject to the life expectancy limits of IRC §7520. However, if the grantor’s life falls short of the mortality table, the CLAT will create a tax break for the family. Although procrastination is never a suggested strategy, it’s a common human trait. But even at a later date, it’s possible to improve your financial outcome with appropriate guidance.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any taxrelated statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.


About the author

Michael Repak

Vice President & Senior Estate Planner

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