Understanding Key Estate Planning Acronyms

By Nate Johnson, Tax Associate

Estate planning is a complex field, filled with specialized terms and acronyms that can be confusing for both clients and even some professionals. However, understanding these acronyms is crucial for making informed decisions that maximize tax efficiency, protect family wealth, and ensure that your wishes are carried out.   

This article explains six of the most important acronyms in estate planning, highlighting what each means, why it matters, and how collaboration between a CPA and an estate planning attorney can help clients achieve optimal results.  

1. DSUE (Deceased Spousal Unused Exclusion) 

What is DSUE?

DSUE stands for Deceased Spousal Unused Exclusion. Under federal estate tax law, each individual has an exclusion amount that can be used to shield assets from estate tax. If a spouse dies without using their full exclusion, the unused portion can be transferred to the surviving spouse through a process called “portability.” The transferred amount is known as the DSUE.  

Why is DSUE Important?

Portability allows married couples to combine their exclusion amounts, potentially doubling the amount they can pass to heirs free of federal estate tax. For example, if the federal exclusion is $13,990,000 per person, a couple could potentially shield up to $27,980,000 from estate tax if the DSUE is properly elected.   

How Can a CPA and Estate Planning Attorney Help?  

Transferring the DSUE is not automatic; the executor must file a timely estate tax return and make an affirmative election to transfer the unused exclusion to the surviving spouse. A CPA can help calculate the unused exclusion and ensure that the necessary tax returns are filed on time to ensure proper transfer.   

2. GST (Generation-Skipping Transfer) 

What is the GST?

GST refers to the Generation-Skipping Transfer tax, a federal tax imposed on transfers of wealth to individuals who are more than one generation below the transferor (such as grandchildren). The GST tax is designed to prevent families from avoiding estate taxes by “skipping” a generation.  

Why is GST Important?

Each individual is allowed a GST exemption amount, which is equal to the basic exclusion amount for the year of the transfer. Proper allocation of the GST exemption can allow significant wealth to pass to grandchildren or more remote descendants free of GST tax. However, the rules are complex, and improper allocation can result in unintended tax liability.  

How Can a CPA and Estate Planning Attorney Help?

A CPA can track GST exemption usage and help prepare the necessary tax filings, while an attorney can structure trusts and other vehicles to take full advantage of the exemption. Their combined expertise ensures that GST planning is both tax-efficient and legally sound. 

3. GRAT (Grantor Retained Annuity Trust) 

What is a GRAT?

A GRAT is a Grantor Retained Annuity Trust, an irrevocable trust in which the grantor transfers assets but retains the right to receive fixed annuity payments for a set term. After the term ends, any remaining assets are typically passed to beneficiaries, such as children or other family members.  

Why are GRATs Important?

GRATs are powerful tools for transferring appreciation of assets to the next generation with minimal or no gift tax. If the assets in the GRAT outperform the IRS’s assumed rate of return, the excess passes to beneficiaries free of additional gift tax. GRATs are especially useful in low-interest-rate environments or when transferring assets expected to appreciate rapidly.  

How Can a CPA and Estate Planning Attorney Help?

A CPA can model potential tax outcomes and assist with trust accounting, while an attorney can draft the trust to comply with IRS requirements and meet client objectives. This collaboration ensures the GRAT is structured and administered for maximum benefit. 

4. SLAT (Spousal Lifetime Access Trust) 

What is a SLAT?  

A SLAT is a Spousal Lifetime Access Trust, an irrevocable trust created by one spouse for the benefit of the other (and possibly other family members). The grantor removes assets from their taxable estate, but the beneficiary spouse can access trust assets during their lifetime.  

Why are SLATs Important?

SLATs enable couples to utilize their gift and estate tax exemptions while maintaining indirect access to trust assets. This is particularly valuable in anticipation of lower future exemption amounts or for clients who want to “lock in” current high exemptions but are concerned about losing access to the funds.  

How Can a CPA and Estate Planning Attorney Help?

A CPA can advise on the gift tax implications and help track exemption usage, while an attorney can draft the trust to avoid pitfalls such as the reciprocal trust doctrine. Their joint input helps ensure the SLAT achieves both tax and family goals. 

5. ILIT (Irrevocable Life Insurance Trust) 

What is an ILIT?

An ILIT is an Irrevocable Life Insurance Trust, a trust designed to own life insurance policies outside the insured’s taxable estate. The trust is irrevocable, meaning the grantor cannot change its terms or reclaim the assets.  

Why are ILITs important?

Life insurance proceeds are generally included in the insured’s estate for estate tax purposes if the insured owns the policy. By transferring ownership to an ILIT, the proceeds can be excluded from the estate, providing liquidity to pay estate taxes or support heirs without increasing estate tax liability.  

How Can a CPA and Estate Planning Attorney Help?

A CPA can help with gift tax reporting for premium payments and ensure compliance with the “Crummey” notice requirements, while an attorney can draft the ILIT to meet legal and tax requirements. This teamwork helps clients maximize the benefits of life insurance in their estate plan. 

6. QPRT (Qualified Personal Residence Trust) 

What is a QPRT?

A QPRT is a Qualified Personal Residence Trust, an irrevocable trust that allows a person to transfer a personal residence out of their estate at a reduced gift tax value, while retaining the right to live in the home for a specified term.  

Why are QPRTs Important?

QPRTs are effective for clients with valuable homes who want to reduce estate taxes. The value of the taxable gift is reduced by the value of the retained right to live in the home. If the grantor survives the trust term, the residence passes to beneficiaries at a lower transfer tax cost.  

How Can a CPA and Estate Planning Attorney Help?

A CPA can calculate the gift tax value and advise on potential income tax consequences, while an attorney can draft the trust to comply with IRS rules and client preferences. Their collaboration ensures the QPRT is both tax-efficient and practical.  

Leverage Maner Costerisan’s Expertise

Understanding these estate planning acronyms is crucial for clients seeking to preserve their wealth, minimize taxes, and provide for their families. Because the rules governing these strategies are complex and often interrelated, working with both a CPA and an estate planning attorney is the best way to ensure that your estate plan is comprehensive, compliant, and tailored to your unique goals.   

By leveraging the expertise of both professionals, clients can make the most of these powerful estate planning tools. For more information, contact the wealth experts at Maner at maner@manercpa.com.