The Second D of Tax Planning: How to Keep Income Off a Tax Return
A message from David L. Blain, CFA — CEO, BlueSky Wealth Advisors
Here’s something your accountant probably never said out loud: you don’t have to be the one who pays the tax.
You can move income legally to a family member who pays at a lower rate, to a charity that pays nothing at all, or into a structure where the tax simply never happens. The tax code allows all of it. Most people just never ask and leave a significant amount of money on the table as a result.
That’s what Divert means. And it’s D number two in our 5 D’s of Tax Planning series.
If you haven’t watched the intro or the Defer video yet, start there. But here’s the short version of the core idea: once income lands on a tax return you have to sign, your options shrink considerably. The entire goal of Divert is to reroute income before it gets there.
In this video, I cover:
- The three destinations for diverted income: family members in lower brackets, charitable structures, and legal entities where the income is never recognized as taxable in the first place
- How employing your children in your business can produce a deduction at your rate and income taxed at their rate
- The three main charitable tools: Donor Advised Funds, Qualified Charitable Distributions, and Charitable Remainder Trusts
- Advanced Divert strategies for the right circumstances, including GRATs, SLATs, ILITs, dynasty trusts, Private Placement Life Insurance, and more
The strategies in this video range from straightforward to sophisticated. All of them are legal. None of them require doing anything aggressive: just planning ahead with the right structure in place.
If you want to know whether any of these apply to your situation, feel free to reach out to us at BlueSky and we’d be glad to help.
The Second D of Tax Planning: How to Keep Income Off a Tax Return
The following strategies are referenced in this video. All require professional guidance to implement properly. This is not tax or legal advice.
Trust Strategies
- GRAT (Grantor Retained Annuity Trust): Transfer appreciation to heirs gift-tax free
- SLAT (Spousal Lifetime Access Trust): Spouse retains indirect access while assets leave the taxable estate
- ILIT (Irrevocable Life Insurance Trust): Life insurance proceeds pass outside the taxable estate
- QPRT (Qualified Personal Residence Trust): Transfer a home to heirs at a discounted gift tax value
- Dynasty Trust: Multi-generational income shifting and asset protection
- 529 Superfunding: Contribute up to $95,000 per beneficiary (as of current year 2026) in a single year using five-year gift tax averaging (Source: IRS)
Advanced Structures
- PPLI (Private Placement Life Insurance): Wrap investments inside a life insurance structure so income is never taxable
- Non-Grantor Trust: Trust pays its own tax, keeping income off your personal return
- DAPT (Domestic Asset Protection Trust): Asset protection from creditors while retaining some access
- CLT / CLAT (Charitable Lead Annuity Trust): Charity receives income first; heirs receive the remainder
- Trust Decanting: Modify the terms of an irrevocable trust by pouring assets into a new trust
- FLP / FLP Discount (Family Limited Partnership): Transfer business or investment interests at a valuation discount
Charitable Tools
- DAF (Donor Advised Fund): Contribute appreciated assets, take the deduction now, give to charity over time
- QCD (Qualified Charitable Distribution): For ages 70½ and older, direct up to $111,000/year (as of current year 2026) from an IRA straight to charity (Source: IRS)
- CRT (Charitable Remainder Trust): Trust sells assets tax-free, you receive income for life or a set period, remainder passes to charity
