The Practical Planner Podcast: "Capital Gains vs Estate Tax Planning"

Podcast Hosts: Thomas Kopelman & Rachel Hartman
Date: January 6, 2026
Episode Theme:
A deep dive into the practical differences and trade-offs between capital gains tax planning and estate tax planning, highlighting actionable strategies, state-specific nuances, and critical decision-making factors for financial advisors.

Episode Overview

This episode explores how financial advisors can balance capital gains tax and estate tax planning to optimize outcomes for clients at varying asset levels, ages, and state jurisdictions. Hosts Thomas Kopelman and guest expert Rachel Hartman discuss common strategies, planning pitfalls, the impact of asset type and location, and how state-specific rules can significantly alter the ideal approach.

Key Discussion Points & Insights

1. Estate Tax vs Capital Gains Tax: Foundational Differences

• Initial Framing: Advisors must assess if clients are likely to exceed estate tax thresholds and weigh that against potential savings from step up in basis (00:09–01:36).
• Both federal and state inheritance/estate taxes matter; states like Pennsylvania and New York have their own layered taxes.
  • Rachel Hartman: "Pennsylvania, we don't have an estate tax, but we have an inheritance tax. So... even if I can get out of federal estate tax, I'm still going to always have inheritance tax." (00:57)

2. Asset Location and State Nuances

• State residency of both the benefactor and beneficiary can create layered tax exposure (01:36–02:26).
  • Example: NY parents with PA kids may only trigger NY estate tax, with PA inheritance tax applying at the next generation's passing.

3. Asset Growth, Age, and the Importance of Early Planning

• Younger clients with high-growth, low-basis assets (like startup stock) have different planning needs than retirees with slowly appreciating or diversified portfolios (02:26–04:44).

  • Thomas Kopelman: "If you're at $10 million but, you know, you're single and you're 85, that's different than you're $10 million at 40."

• Modeling scenarios (current value, projected growth, worst case) is essential for tailored advice.

  • Rachel Hartman: "There's not one size fit all. You got to sit down, run the numbers and just see what makes the most sense for you." (05:57)

4. Step Up in Basis and Trust Structures

• Most irrevocable trusts eliminate the possibility for a step up in basis; exceptions exist with specific powers of appointment (07:28–08:02).
  • "If you have an irrevocable trust and it's outside of your estate, it's not going to get a step up in basis." — Rachel Hartman (07:28)
• Asset substitution within irrevocable trusts can allow planners to swap in high-basis or cash assets ahead of death to maximize step up on the best candidates (08:02–08:53).

5. State-Specific Capital Gains Tax Planning

• State-level rules, such as special capital gains taxes (e.g., Washington's) or lack thereof, impact planning (09:03–10:41).
• Use of federal gain deferral mechanisms (Qualified Opportunity Zones, 1031 exchanges) depends on knowledge of both federal and state codes.

6. Advanced Tax Management: Loss Harvesting, Direct Indexing, and Basis Strategies

• Direct indexing and tax loss harvesting are powerful for high-net-worth clients who intend to pass appreciated assets with a step up in basis (10:41–12:32).
  • Thomas Kopelman: "Knowing very well I'm never going to need to sell that money to spend. And then what happens is in the future you're going to end up getting this kind of step up in basis from it." (11:14)
• California, Pennsylvania, and Massachusetts discussed as case studies for state-specific planning quirks (12:32–14:44).

7. Common Estate and Capital Gains Tax Tools

• Recap and checklist of fundamental strategies:
  • Estate Tax: Annual gifting, irrevocable trusts, GRATs (Grantor Retained Annuity Trusts), asset substitution, direct gifts of low-basis stock.
  • Capital Gains: Tax gain/loss harvesting, opportunity zones, 1031 exchanges, direct indexing, donating appreciated assets, using donor-advised funds (15:27–17:47).
• High-net-worth tools (like variable prepaid forwards, specialized ETFs) aren't usually appropriate for clients with more modest capital gains (18:22–19:51).

8. Avoiding Over-Focus on Tax at Expense of Wealth

• Advisors warn against “tax tunnel vision” that leads to poor investment or lifestyle decisions, like chasing deductions (20:15–21:16).
  • Thomas Kopelman: "Tax is important, but after-tax wealth is the most important."

9. Charitable Giving and Capital Gains Avoidance

• Benefits of donating appreciated assets to DAFs or CRTs before selling; timing and AGI limitations can affect the planning outcome (21:16–23:19).
  • Rachel Hartman: "It wasn't necessarily to get the income tax deduction. It was to get rid of those high, those high assets while still meeting your charitable goals." (21:51)
• Combining donor-advised funds with standard deduction strategies to optimize multi-year tax efficiency.

Notable Quotes & Memorable Moments

• On the Need for State-Specific Knowledge:

  • "Every state just has these weird random rules that they create for no reason. That can make things hard, but you really have to be aware of them before you kind of push somebody into a decision or a situation that was wrong." — Thomas Kopelman (13:29)

• On the Pitfalls of Tax-Driven Decisions:

  • "There's nothing that is, that annoys me more is when someone says they do it for the write off and it's like, well, you still have to spend the money to get the write off." — Rachel Hartman (21:02)

• On the Importance of Grantor Retained Annuity Trusts (GRATs):

  • "For a lot of high net worth people, I don't think they use them enough. Like it's kind of a no brainer if you have too much money." — Thomas Kopelman (15:36)

Important Timestamps

• 00:57–02:26: Explains state inheritance vs. estate taxes; cross-state planning challenges
• 04:44–05:57: When to transfer high-growth assets; compounding’s effect on estate/gift strategy
• 07:28: Step up in basis in (most) irrevocable trusts
• 10:41–12:32: Advanced loss harvesting/direct indexing for ultra-high-net-worth clients
• 13:29: State-by-state pitfalls and planning examples (MA, CA, PA)
• 15:27–17:47: Rapid-fire recap of estate and capital gains tax planning strategies
• 20:15: Dangers of “tax-only” thinking; wealth-building focus vs. deduction obsession
• 21:16–23:19: Charitable giving tactics, donor-advised funds, AGI limitations

Summary Takeaways

• Individualization is Key: There’s never a one-size-fits-all for estate vs. capital gains tax planning. Model for each client’s age, asset base, and expectations.
• Know the Rules—Federal & State: Every jurisdiction’s quirks (inheritance taxes, capital loss carryforward rules, deduction limits) must be understood.
• Use the Right Tools: GRATs, irrevocable trusts, gain deferral, loss harvesting, and charitable techniques are all in the advisor’s toolbox—but size and complexity of gains matter.
• Prioritize After-Tax Wealth: Don’t chase deductions at the cost of sound investments; optimal outcomes come from truly holistic planning.

For advisors:
This episode is packed with actionable strategies, warning signs, and key questions to consider in your estate and capital gains planning. Nuance matters; model, customize, and always check your state’s fine print!