Six ways the wealthy save big on property taxes, from putting homes in trust to securing inheritance for future generations

Jeremy Strong, Sarah Snook and Kieran Culkin in Season 4 of

Jeremy Strong, Sarah Snook and Kieran Culkin in the fourth season of “Succession”.Claudette Barius/HBO

  • Wealthier taxpayers have many tools at their disposal to pay Uncle Sam less.

  • Some tactics, like donating to charity through trusts, may seem outlandish, but are perfectly legal.

  • Lawyers and bankers for the ultra-rich told Insider how these rarefied techniques work.

Thanks to tax cuts made under the Trump administration, Americans can gift or pass nearly $13 million in assets without paying federal estate taxes. 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.

“It’s a rich person’s playground problem,” Robert Strauss, a partner at law firm Weinstock Manion, told Insider.

Some of these tax avoidance techniques may raise eyebrows, but they are perfectly legal. For example, taxpayers can put houses and cottages in trusts that last for decades, and any appreciation in the value of the property does not count against 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 purchased from issuers in the Cayman Islands and Bermuda.

Over the next two years, estate planning will kick into high gear as the end of Trump’s tax cuts nears. Currently, individuals and married couples can gift or bequest $12.92 million and $25.84 million, respectively, before a 40% federal estate tax kicks in. But this exemption, barring new legislation, will be halved by the end of 2025.

Here are six little-known techniques wealthy taxpayers use to pay Uncle Sam less:

Qualified Personal Residence Trusts, better known as QPRTs, effectively freeze the value of real estate for tax purposes. The owner places the primary residence or vacation home in the trust and retains ownership for the number of 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 house has appreciated by millions of dollars.

QPRTs have become more popular over the past year as interest rate hikes provide another tax benefit. It sounds too good to be true, but there are a few conditions attached.

From the Wrigley family behind the incumbent chewing gum brand to the mother of Amazon investor Jeff Bezos, some of America’s wealthiest are using generation-skipping trusts to avoid paying wealth transfer taxes and provide for the needs of future heirs.

These so-called dynasty trusts allow taxpayers to pass on their wealth to generations not even born yet and are only subject to the 40% generation skip tax once. Many states have relaxed trust limits for obtaining the affairs of the wealthy, with Florida and Wyoming allowing dynasty trusts to last up to 1,000 years, which spans about 40 generations.

The heirs do not own the assets of the trust, but rather have lifetime rights to the income and real estate of the trust. These trusts even protect the assets of future creditors and protect them in the event of a divorce.

Here’s how these age-old trusts work and why even veteran lawyers have a hard time navigating them.

Charitable Remaining Trusts (CRTs) allow wealthy Americans to have their cake and eat it too.

Many wealthy taxpayers deduct charitable donations from their taxable income, but the ultra-rich can turn their philanthropy into guaranteed income for life.

Taxpayers place assets in the trust, receive annual payments for as long as they live, and receive partial tax relief. Only 10% of what’s left in the CRT has to go to a designated charity to clear the IRS.

These trusts can be funded with a wide range of assets, from yachts to private businesses, making them especially useful for entrepreneurs looking to get some cash and do some good.

Unlike QPRTs and CRTs, this technique is highly scrutinized by the IRS and has many hurdles to jump through.

Asset-rich but cash-poor families facing an inheritance tax bill can either rush to sell those assets to meet the nine-month deadline or take out a loan.

The estate can make an initial deduction from the interest on these Graegin loans, named after a 1988 Tax Court case. Additionally, if the illiquid assets are at least 35% of the value of the estate, families can defer estate tax for 14 years, pay in installments with interest, and take out a government loan.

Graegin loans are prime targets for auditors and have led to years-long legal battles, but the savings may be worth it for wealthy families.

Private Placement Life Insurance, or PPLI, can be used to pass assets from stocks to yachts to heirs without incurring inheritance tax.

In short, a lawyer creates a trust for a wealthy client. The trust owns the foreign-created life insurance policy. Trust assets are treated as premiums and, if properly structured, the benefits and assets of the policy are bequeathed free of estate tax.

It’s only for the ultra-rich, often requiring $5 million in upfront bonuses as well as a small army of professionals to set up and administer, including trust and estate lawyers, asset managers, custodians and tax advisers.

Wealthy Americans managed to dodge nearly every tax reform proposed during Biden’s presidency, but Senator Ron Wyden says he is investigating PPLI and industry leaders, including Blackstone-owned wealth manager Lombard. International.

The bear market has a positive side for high net worth individuals. Now is a great time to create new trusts because people can transfer depressed assets, whether stocks or bitcoins, at a lower tax rate.

Long-favored grantor-retained annuity trusts (GRATs) can confer significant tax savings during recessions. These trusts pay a fixed annuity over the term of the trust, which is usually two years, and any appreciation in the value of the assets is not subject to estate tax.

GRATs have grown in popularity over the past year as the Federal Reserve raised interest rates, which eroded returns on these trusts.

Read the original article on Business Insider

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