Secret methods using Living Trusts the wealthy use to reduce taxes revealed by expert estate planning attorney in California 👉 Book a Call at for estate planning, tax planning, and wealth management tips.
How do wealthy people use tried-and-true estate planning techniques to reduce death taxes, capital gains taxes, gift taxes, and preserve Prop 13 tax caps on California real estate? Join Attorney Jim Cunningham, bestselling author of “Savvy Estate Planning,” as he walks you through three in-depth case studies. You will gain valuable insight into the sophisticated, “advanced planning techniques” that have been too long hidden from view by the top lawyers in the field! Don’t miss this legal webinar.
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How Wealthy People Structure Estates to Reduce Taxes
When it comes to managing their wealth, the rich have a different set of rules to play by. One such tactic employed by wealthy individuals is estate planning, allowing them to maximize the assets they leave behind while minimizing the impact of taxes. Here, we examine some common strategies used by the affluent to structure their estates and reduce their tax liabilities.
1. Establishing a Trust:
One popular technique employed by the wealthy is to set up a trust, a legal entity that holds and manages assets on behalf of beneficiaries. Trusts are useful in reducing estate taxes, as they can be structured to transfer wealth to future generations while limiting tax liabilities. By placing assets in a trust, ownership is technically transferred, allowing the estate to avoid taxation at the time of death.
2. Gifting:
Wealthy individuals often take advantage of annual gift tax exclusions, allowing them to gift a certain amount of money or assets to individuals without being subject to gift taxes. By spreading their wealth over time, the wealthy can reduce the overall value of their estate subject to taxation. Gifting can be done to family members, friends, or even charities, providing a win-win situation by benefiting both the recipient and the estate owner.
3. Charitable Giving:
Charitable donations not only benefit the community but can also assist in reducing tax burdens. Wealthy individuals may establish foundations or make direct donations to qualified nonprofits, resulting in tax deductions. Such philanthropic acts provide an opportunity to structure estates in a way that aligns with personal values while also lowering estate taxes—an appealing prospect for individuals looking to make a meaningful impact.
4. Life Insurance:
Another strategy favored by the wealthy is utilizing life insurance to minimize estate taxes. By designating a life insurance policy as an individual’s beneficiary, the payout is not considered part of the estate and, therefore, is not subject to estate taxes. This approach allows estate owners to provide for their beneficiaries while keeping valuable assets outside the taxable threshold.
5. Family Limited Partnerships:
Family limited partnerships (FLPs) are commonly employed to transfer wealth to future generations while mitigating estate taxes. By establishing an FLP, wealthy individuals can create limited partnership interests that are eligible for valuation discounts, reducing estate tax burdens. Additionally, FLPs usually grant the original owners control over the assets during their lifetime, allowing them to maintain influence over the transferred wealth.
6. Grantor Retained Annuity Trusts:
Grantor retained annuity trusts (GRATs) are designed to transfer assets out of an individual’s estate while minimizing taxes. With GRATs, the creator places assets in a trust and retains an annuity payment for a set period. After this period, the remaining assets pass to the beneficiaries, typically at a reduced tax value. GRATs are suitable for estate owners who believe the asset’s value will increase significantly over time, allowing them to pass on appreciation while limiting estate tax exposure.
7. Foreign Trusts:
Some wealthy individuals choose to create foreign trusts, also known as asset protection trusts, in countries with beneficial tax laws. These trusts offer an additional layer of tax reduction by owning assets outside the jurisdiction of their home country. While this strategy can be controversial and legally complex, it provides an option for the ultra-wealthy to structure their estates more advantageously.
It is important to note that estate planning strategies should always be approached with professional guidance and consideration of relevant legal and tax regulations. Additionally, tax laws often change, impacting the effectiveness of certain strategies. Therefore, individuals should regularly review and update their estate plans to ensure they continue to align with their objectives and comply with current legislation.
In conclusion, the wealthy have access to various tools and strategies to structure their estates in a way that minimizes taxes. From establishing trusts and gifting assets to utilizing life insurance and creating foreign trusts, these tactics allow affluent individuals to pass wealth to future generations while reducing the burden of taxes. Choosing the appropriate strategies requires sound counsel from legal and financial professionals to create comprehensive estate plans that align with individual goals and current legal frameworks.
I’m buying your book. Thank you for the video
Great Video,
Can you do a video on "Non-Grantor Irrevocable Complex Discretionary Spendthrift Trusts" Does your firm form and maintain these types of structures?
Truly appreciate your videos, Jim. I understand the advantages of IDGTs. The major disadvantage I think is, a highly appreciating asset (such as real property) will NOT get a step up in basis upon thr grantor's death, since IDGT assets get to be excluded from grantor's estate. So the beneficiary are kinda screwed, in terms of inheriting a presumably much lower basis which means much higher potential capital gains, much lower potential depreciation expense if rented, to say nothing of significantly higher property taxes due to Prop 19. Is the ANY way out of this??