global Tax Reduce Estate Taxes with the Squeeze and Freeze Strategy August 17, 2026 High net-worth families who want to transfer future asset appreciation out of their estates, while minimizing their exposure to gift tax, are increasingly turning to a strategy known as “squeeze and freeze.” The general idea is to squeeze as much value as possible from assets and then freeze their value for estate tax purposes. Quick Takeaways A squeeze-and-freeze strategy can help reduce future estate tax exposure by lowering the value of transferred assets and locking in that value for tax purposes. Family limited partnerships and LLCs may create valuation discounts that can reduce the taxable value of gifts involving minority or nonvoting interests. Trusts such as IDGTs and GRATs can help shift future appreciation to beneficiaries while keeping the initial transfer value within available gift and estate tax exemptions. These strategies come with important considerations, including IRS scrutiny and potential loss of a step-up in basis, making professional guidance essential. Why it mattersEstate planning for families with significant wealth is not just about transferring assets. It is preserving more of what you’ve built for future generations. A squeeze-and-freeze strategy can help move future appreciation outside of your taxable estate while taking advantage of valuation discounts and other planning opportunities. However, these strategies require careful planning, proper documentation and ongoing management to avoid potential IRS challenges.What is the Squeeze-and-Freeze Strategy?Some of the most valuable estate planning strategies for reducing potential estate tax liability involve “squeezing” and “freezing” assets, in other words, discounting assets in various ways and locking in lower asset values. These strategies can help transfer future appreciation out of your estate while allowing you to retain a degree of control over certain assets or, in some cases, receive an income stream.The SqueezeSqueezing the value of appreciating assets, such as a business, real estate or securities, can reduce the overall value of your estate and help keep its worth within the federal gift and estate tax exemption. For 2026, the exemption amount is $15 million ($30 million for married couples filing a joint tax return); any excess is taxed at up to 40%.One common approach when using this technique is to transfer assets to a family limited partnership (FLP) or family limited liability company (FLLC). Minority or nonvoting interests in such entities generally are subject to significant valuation discounts that reflect:the lack of control the interest holder has over the entity, and the interests’ lack of marketability outside of the family. The discounts reduce the gift tax on such interests.The FreezeIf you’re not ready to directly gift an FLP, FLLC or other interests to your children or grandchildren, lock in the lower values by transferring the interests to a trust, via gift and/or installment sale (the latter avoids gift tax). The value of the interests is “frozen” at their fair market value (FMV) on the transfer date, so future appreciation won’t be subject to estate tax.For example, you can gift interests to an irrevocable intentionally defective grantor trust (IDGT). Only the initial value of the interests is applied against your gift and estate tax exemption, and the interests appreciate in the trust estate-tax-free. You’ll be liable for the income tax on the interests, but your tax payments further reduce the value of your estate and aren’t treated as gifts by the IRS.Alternatively, you could sell the interests to the IDGT at FMV for a promissory note with a relatively low interest rate. Because you’re the grantor, you generally won’t have to recognize a gain on the sale. The note will be part of your estate but likely will appreciate at a slower rate than the sold interests would. How can a Grantor-retained Annuity Trust (GRAT) help?A grantor-retained annuity trust (GRAT) is another option. You fund a GRAT with a one-time contribution of assets in exchange for an annuity, shifting the assets from your estate. (Note that, similar to an IDGT, you’re liable for income taxes.) The GRAT pays you an annuity for a specific term, and income, gains and losses flow to you, rather than the trust. When the annuity payout period expires, any remaining assets are transferred to your designated beneficiaries, generally free of gift and estate tax. (If you die before the period ends, however, the assets return to your estate.)Important: Remember that assets transferred into a trust won’t receive a step-up in basis at death, possibly resulting in higher capital gains taxes for beneficiaries down the road than if assets were inherited directly.Could other trust strategies help?A spousal lifetime access trust (SLAT) is another option to consider. A SLAT is an irrevocable trust that allows you to name your spouse, children or other heirs as beneficiaries while applying your lifetime gift tax exemption to contributions made to the trust. Like other estate planning strategies, a SLAT may help remove future appreciation from your taxable estate while providing flexibility for your family.What risks should you consider before using a squeeze-and-freeze strategy?Trusts often are complicated to establish and operate in compliance with IRS regulations. The IRS also has a history of closely scrutinizing family entities, such as FLPs and FLLCs, to ensure they satisfy the strict requirements imposed on such arrangements.
