The Practical Planner – Episode Summary

Episode Title: Capital Gains vs Estate Tax Planning

Release Date: January 7, 2026
Host: Thomas Kopelman
Guest: Rachel Hartman
Produced by: wealth.com

Episode Overview

In this episode, Thomas Kopelman and guest Rachel Hartman delve into the nuanced interplay between capital gains tax planning and estate tax planning. The discussion centers around how advisors can actively help clients balance the often-competing priorities of reducing estate taxes versus optimizing for stepped-up basis and capital gains tax minimization. Specific strategies, state-by-state considerations, and practical case studies make this a must-listen for advisors navigating complex tax planning in evolving regulatory environments.

Key Discussion Points & Insights

1. Federal vs. State Tax Considerations (00:57 – 04:44)

• Advisors must distinguish between federal estate tax, state estate tax, and inheritance tax—each with unique implications for planning.
  • Quote:
    “If I can get out of federal estate tax, I’m still going to always have inheritance tax... it’s not always just as simple as looking at that $13.99M and going above or below that.”
    —Rachel Hartman [01:08]
• The impact varies greatly by state (e.g., Pennsylvania’s inheritance tax, New York’s estate tax, Washington’s capital gains tax).
• Residency of the decedent and beneficiary matters for state inheritance taxes.

2. Prioritizing Capital Gains vs. Estate Tax Planning (02:26 – 05:57)

• Client age, net worth, asset composition, and growth prospects are key factors in determining whether to focus on reducing estate taxes or maximizing step-up in basis at death.
  • Quote:
    “If you have high appreciating assets that you really expect are going to grow, you want to try to get them out of your estate sooner rather than later.”
    —Rachel Hartman [03:36]
• For younger clients or those holding high-growth assets (e.g., founder’s stock), it often makes sense to remove assets from the estate now. For retirees, the calculus may lean toward seeking a step-up in basis.
• Model out various scenarios (current value, projected growth, worst-case) to decide optimal strategies.

3. Trust Structure, Step-Up in Basis & Asset Substitution (06:26 – 08:53)

• Irrevocable trusts commonly used to remove assets from estates do not typically qualify for step-up in basis on death, unless the grantor retains certain powers (rarely advisable).
  • Quote:
    “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]
• Some irrevocable trusts allow the substitution of assets, enabling “swap” strategies so that high-basis assets can benefit from a step-up at death.
  • Common to swap with cash or other high-basis assets strategically.

4. State-Specific Quirks & Planning Opportunities (09:03 – 13:29)

• Unique state rules (e.g., Pennsylvania’s lack of capital loss carryforward, Massachusetts’ disallowance of the employer side of 401k deductions) demand localized, detail-oriented planning.
  • Quote:
    “Here in Pennsylvania, a couple other states… we don’t allow capital loss carryovers.”
    —Rachel Hartman [12:33]
• Advisors should be vigilant about state differences to avoid costly mistakes for clients.

5. Estate Tax Reduction Strategies (14:44 – 16:56)

• Annual Gifting: Use the annual exclusion for tax-free gifting, 529 superfunding, paying tuition and medical expenses.
• Irrevocable Trusts: For high-growth assets, especially via GRATs (Grantor Retained Annuity Trusts).
  • Quote:
    “GRATs are just a good one where you don’t use any of your estate tax threshold but you can get money out of your estate without using any.”
    —Thomas Kopelman [15:36]
• Gifting Low-Basis Assets: Consider gifting low-basis stock to children in lower tax brackets to maximize tax efficiency.

6. Capital Gains Tax Minimization Strategies (16:56 – 21:16)

• Tax Gain Harvesting: Realize gains in lower tax brackets; avoid selling assets before death in many cases to secure a step-up in basis.
• Tax Loss Harvesting & Direct Indexing: Especially valuable for ultra-high-net-worth clients to offset future gains and maximize basis step-up.
• Qualified Opportunity Zones & 1031 Exchanges: For deferral or exclusion of gain, with caveats on current legislative rules.
• Gifting to Charity Before Sale: Use donor-advised funds and charitable trusts to avoid capital gains and secure deductions.

7. Mistakes to Avoid & Big Picture Thinking (19:51 – 21:16)

• Beware of letting tax “shiny object” strategies drive suboptimal investment or estate decisions.
  • Quote:
    “The biggest mistake high net worth people make… is only thinking through the lens of tax…after-tax wealth is the most important.”
    —Thomas Kopelman [20:15]
• Don’t incur unnecessary complexity or bad investments just to defer taxes.

8. Charitable Planning for Capital Gains & Income Tax (21:16 – 23:19)

• Prime opportunity during liquidity events to donate appreciated assets, especially when clients are at high-income levels or standard deduction vs. itemizing is a consideration.
  • Quote:
    “For most of my clients, [liquidity events are] a really good period to take care of the next 10 to 20 years of charitable giving… donate the low basis stock... avoid that capital gain, get a deduction... and still go and grow those assets.”
    —Thomas Kopelman [21:21]
• Donor-advised funds let clients “bunch” giving for maximal tax efficiency.

Notable Quotes & Memorable Moments

• “You have to look at what do I want to happen to these assets ultimately? Do I think it’s a business my kid’s going to hold onto or do I think they’re going to sell it?”
  —Rachel Hartman [03:36]

• “It’s so easy to get down into the weeds, but sometimes you just have to be. There are just so many little things that can add up.”
  —Rachel Hartman [14:34]

• “There’s nothing that annoys me more than 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]

Timestamps for Important Segments

• 00:57 – Federal vs. State Tax Issues: How geography drives planning priorities.
• 03:36 – Asset Growth & Estate Planning: High-growth scenarios and gifting logic.
• 06:26 – Trusts & Step-Up in Basis: Mechanisms, exceptions, and asset swaps.
• 09:03 – State Rules & Planning Pitfalls: Examples from Washington, Pennsylvania, Massachusetts.
• 14:44 – Estate Tax Planning Recap: Key mechanics and tool choices.
• 16:56 – Capital Gains Tax Planning Recap: Strategies for various client profiles.
• 19:51 – Focusing on After-Tax Wealth: The importance of investment fundamentals.
• 21:16 – Charitable Planning & Liquidity Events: Optimizing giving for tax.

Summary Takeaways for Advisors

• There is no one-size-fits-all strategy; each client’s age, assets, anticipated growth, and state law exposure demand tailored solutions.
• Thorough modeling and scenario analysis—considering not just taxes but family goals and asset disposition—are essential.
• State-specific nuances can make or break a plan; advisors must know (or coordinate with those who know) local rules.
• Sometimes, minimizing taxes comes second to ensuring the right overall long-term outcome for the family’s net wealth.
• Charitable giving with appreciated assets, especially around liquidity events, remains a powerful, underused tool.

For further exploration or feedback, the hosts invite listeners to reach out with tax and estate planning questions for future episodes.