Certified Financial Planner (CFP) Practice Test 2025 – Complete Exam Prep

In estate planning, gift transfers are often utilized as an effective strategy to minimize estate taxes. By transferring assets during a person's lifetime, individuals can reduce the size of their taxable estate at death, thereby potentially lowering the estate tax liability. The IRS allows individuals to give a certain amount each year to as many recipients as they wish without incurring gift taxes or reducing their lifetime estate and gift tax exclusion limit. This strategy not only aids in tax planning but can also allow for the enjoyment of gifts by recipients while the giver is still alive.

Utilizing gift transfers is especially beneficial for individuals who anticipate their estates will exceed the estate tax exemption thresholds. By proactively gifting assets, individuals can manage their estate more effectively and ensure that their heirs benefit from these assets sooner rather than later.

Buying life insurance may provide liquidity to pay estate taxes, but it doesn’t directly reduce the taxable estate. Charitable donations are a wonderful way to give back but often apply to reducing taxable income rather than estate taxes specifically. Creation of joint tenancies can complicate asset distribution and may not always be advantageous for minimizing estate taxes.