Six Ways The Rich Save Big On Estate Taxes

Hayley Cuccinello   Fri, June 2, 2023

Six ways the rich save big on estate taxes, from putting houses in trusts to guaranteeing inheritance for future generations

The wealthiest taxpayers have many tools at their disposal to pay less to Uncle Sam.  Some tactics, like donating to charity via trusts, might seem far-fetched but are perfectly legal.  Lawyers and bankers to the ultra-rich told Insider how these rarified techniques work.

hanks to tax cuts made during the Trump administration, Americans can give or hand down nearly $13 million in assets without paying federal estate tax. Only 0.2% of taxpayers have to worry about this tax, and they hire top-notch accountants and lawyers to pay as little as possible.

"This is a wealthy person's playground problem," Robert Strauss, partner at the law firm Weinstock Manion, told Insider.

Some of these tax avoidance techniques might be eyebrow-raising, yet they are perfectly legal. For instance, taxpayers can put homes and country homes in trusts that last decades, and any appreciation in the property's value doesn't count toward their taxable estate. Life insurance, probably the least sexy area of financial planning, can be used to save tens of millions of dollars in taxes if bought from issuers in the Cayman Islands and Bermuda.

In the next two years, estate planning will rev up into high gear as the end of the Trump tax cuts approaches. Currently, individuals and married couples can gift or bequeath $12.92 million and $25.84 million, respectively, before a 40% federal estate tax kicks in. But that exemption, barring further legislation, will be cut in half at the end of 2025.

Here are six little-known techniques that the richest taxpayers use to pay less to Uncle Sam:

Using trusts to give away homes and country houses

Qualified personal residence trusts, better known as QPRTs, effectively freeze the value of a real estate property for tax purposes. The homeowner puts the primary residence or vacation home in the trust and retains ownership for however many years they choose. When the trust ends, the property is transferred out of the taxable estate. The estate only has to pay gift tax on the value of the property when the trust was formed even if the home has appreciated by millions in value.

QPRTs have become more popular in the past year as interest rate hikes confer another tax benefit. It seems too good to be true, but there are a few strings attached.

Passing wealth to future generations with trusts that last up to 1,000 years

From the Wrigley family behind the titular chewing gum brand to Jeff Bezos' mother, an Amazon investor, some of America's wealthiest use generation-skipping trusts to avoid paying wealth transfer taxes and provide for future heirs.

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