The truth of the old saying that “there is nothing certain in life but death and taxes” was underscored by the frightening reality of the COVID-19 pandemic, which prompted many Americans to stop procrastinating and have their wills and trusts drafted.

Then the inauguration of President Biden, who campaigned on changing the tax system, provided another impetus to estate planning as affluent individuals investigated ways to have more of their money go to their family members and less to Uncle Sam.

The changes being discussed in Washington are significant. Currently, estates of up to $11.7 million are exempt from gift and estate tax. This means that a married couple can pass up to $23.4 million to their heirs with no estate taxes.

However, this exemption amount will sunset on December 31, 2025. Unless Congress acts, the estate and gift tax exemption will then return to $5 million, adjusted for inflation.

Various proposals being discussed – with no certainty they will become law – would reduce this to $6 million, $5 million, or even $3.5 million. Many believe that in the present political climate Congress will do nothing at all, in which case the exemption would go back to $5 million in 2026.

The prospect of such changes has prompted many wealthy families to take a fresh look at their estate plans. Some are making gifts to children and other loved ones now, before Congress makes any significant reductions in the exemption amount.

A client of mine is in precisely this situation. This affluent, generous grandmother asked for advice about whether, and how, to transfer six-figure gifts to several of her adult grandchildren.

What follows is a recap of some strategies anyone in her circumstances might consider, and the pros and cons of each. If you are taking a fresh look at your estate planning, some of these may also be helpful for you.

Make gifts now through irrevocable trusts. One option anyone with a significant estate should consider is creating an irrevocable trust for each child, grandchild, or other heirs as part of an overall estate plan. Depending on its complexity, this could mean spending several thousand dollars in legal fees to draft these trusts – but it would likely reduce the taxes payable by the estate of an affluent person by hundreds of thousands.

In addition to reducing your taxable estate, creating a trust (or several trusts, in more complex situations) can provide financial security to your beneficiaries without handing them the money now, enable the trustee you selected (not your grandchildren beneficiaries) to retain control of assets in the trust, and allow your heirs to benefit in the future from any gains on the principal.

Setting up such an irrevocable trust does require that you file a gift tax return in the year you create it, and the trustee will have to file fiduciary income tax returns each year in most cases.

Make gifts when your heirs reach milestones. For example, you might decide to give each child, grandchild, or other beneficiary a set amount when they graduate from college, get married, buy their first home, etc. Or you can give any or all of them an annual gift.

If the gift is less than $15,000 per donor per recipient, you do not have to inform Uncle Sam. Thus, a couple can give just under $30,000 to a grandchild, or nearly $180,000 to six grandkids. If the gift is more than $15,000 per donor per recipient, you will have to file a Form 709 gift tax return with the IRS.

Pay the grandchildren’s tuition directly to their schools. If your beneficiaries are in school or college, you can pay their tuition directly, thus making a tax-free gift which does not need to be reported on a gift tax return, regardless of size.

Amend your Trust to include specific bequests for your heirs. If your trust is revocable, you can amend the trust to add or change the distribution amounts to your kids, grandchildren or others when you die. Most family living trusts allow the surviving spouse to change his or her portion of the community property assets after the first spouse dies.

Your beneficiaries will receive a stepped-up basis on the amount they receive, just as they generally would on any inherited property, likely enabling them to avoid some or all capital gains if they sell that property.

Note – one of the changes being discussed in Washington is an overhaul or even elimination of the step-up in basis. So any arrangement you make today might have to be revised later.

Update your beneficiary designations or create joint accounts. You can instruct your bank, mutual fund, or investment manager to distribute amounts you specify to your kids, grandchildren, or others when you die.

However, you need to make sure that the financial institution receives your new Beneficiary Designation Form. I have seen an ex-wife receive $400,000 from her ex-husband’s Individual Retirement Account (IRA) because he forgot to change his beneficiary after he married a younger woman!

Also, most financial institutions allow you to create a joint account with an heir, with the provision that the signatures of both accoun tholders are required to withdraw funds. This can allow you to make a gift-tax-free gift now, reducing your estate. No gift tax return is required until the cash is withdrawn.

Consider the impact of your gift on your loved ones. One issue that should be part of your estate planning has nothing to do with the law. It is thinking carefully about the effect your gift may have on a child’s or grandchild’s incentive to strive.

The knowledge that they will have financial security gives some beneficiaries the confidence to spread their wings. Unfortunately, the prospect of an inheritance can cause others to feel they don’t need to study or find a job, undermining their confidence in their own abilities.

Your planning should focus not only on what taxes will do to your assets, but how your beneficiaries may be affected by the wealth you transfer.

By Lynda I. Chung