Tax reduction strategies for the super-rich in the US
Experts from Business Insider have prepared an overview of the most popular schemes to reduce the tax liabilities of American billionaires. Even a brief description of each strategy turns into a detailed material, you can read a summary of them below:
1. “Transferring Real Estate to Trusts”
Qualified Personal Residence Trusts, also known as QPRTs (Qualified Personal Residence Trusts), effectively freeze the value of real estate for tax purposes. The homeowner puts the home into the trust for a specified period of time, while retaining title to the property. At the end of the trust term, the property is removed from the list of taxable assets. Thus, gift tax is levied only on the value of the property at the time the trust is created, even if the value of the home has increased significantly.
2. “Transferring wealth to future generations through long-term trusts”
Some of the wealthiest Americans use long-term trusts to avoid paying wealth transfer tax to future generations. These dynasty trusts allow wealth to be transferred to generations yet to come by being subject to generation skipping tax only once. Some states have reduced restrictions to attract wealthy investors, allowing dynasty trusts to exist for up to 1,000 years, covering about 40 generations.
3. “Charitable giving through trusts.”
The super-rich can use charitable trusts to deduct charitable donations from their taxable income and still receive a guaranteed income for life. These trusts allow annual distributions to be collected during the owner’s lifetime while receiving partial tax benefits. However, only 10% of the balance in the trust must be transferred to the charity.
4. “Estate tax credits.”
This method is under scrutiny by the IRS and comes with many complexities. Families who are asset-rich but cash-strapped and facing inheritance tax can pay off taxes by taking out loans. Among other conditions, loans can allow inheritance tax to be deferred for up to 14 years.
5. “Buying offshore life insurance policies”
PPLI (Private Placement Life Insurance) can be used to transfer assets to heirs without paying inheritance tax. This solution is only available to the super-rich, requiring a significant financial injection and a wide range of professional help to administer such trusts.
6. “Transferring depressed assets during a market downturn”
During a market downturn, wealthy individuals can create trusts by transferring depressed assets with a lower tax basis. GRATs (Grantor-Retained Annuity Trusts) can provide significant tax savings during recessions.
Many of these strategies are becoming more relevant in light of rising interest rates and tax law changes.
Our team is always ready to provide high-quality advice and help in solving any tasks you set. Subscribe to our pages on social networks. If you have any questions, want to order services or consultations from us, then follow this link or write to us on WhatsApp/Viber/Telegram +380 98 363 6493 or call us.