3 Tax-Saving Secrets of the Ultrawealthy, Including Strategic Estate Planning

Death and taxes are unavoidable realities in life, but leaving a hefty tax burden on your heirs is entirely preventable.

Affluent individuals have perfected the strategies for minimizing tax liabilities and ensuring their fortunes transfer seamlessly to future generations. The innovative techniques they employ—designed to accelerate distributions to beneficiaries while keeping funds away from government coffers—prove equally applicable to those managing estates of more moderate scale.

“It’s akin to a long-term chess match spanning decades,” explains Mark Bosler, an estate planning lawyer based in Troy, Michigan, and legal consultant for Real Estate Bees. “Whereas the typical individual depends on a basic will, high-net-worth people follow an entirely distinct strategy.”

Explore the Option of Establishing a Trust

Let’s start with some key realities: Contrary to common myths, estate taxes primarily affect the estates of America’s wealthiest citizens. On the federal side, only those exceeding roughly $15 million in value usually incur taxes. Meanwhile, at the state level, just 16 states plus the District of Columbia impose estate or inheritance taxes, per data from the Tax Foundation. These often feature exemptions lower than federal ones but still focus on substantial fortunes belonging to millionaires.

For the majority, passing assets to loved ones happens without tax complications, yet without proper foresight, estates can become entangled in prolonged, chaotic proceedings that drag on for years and drain family resources through exorbitant legal and court expenses.

At the heart of most estate planners’ recommendations lies the trusty trust—a foundational element in effective wealth transfer designs.

Trusts might evoke notions of intricate setups reserved for the super-rich, but in truth, they function as straightforward instruments suitable for a broad range of people. Setup involves costs, frequently running into thousands for attorney services, yet for a retired pair owning a mortgage-free home, retirement accounts like 401(k)s, and an investment portfolio, trusts streamline asset handover to heirs considerably.

Key advantages include bypassing probate court entirely, even if your estate falls below taxable thresholds. Probate often levies fees proportional to the estate’s full value, creating unnecessary hurdles.

“You end up diverting money that could benefit your kids or other relatives straight to lawyers and the judicial system,” notes Renee Fry, CEO of Gentreo, a digital estate planning service headquartered in Quincy, Massachusetts. “This could mean forfeiting anywhere from 3% to 8% of your estate’s worth.”

By utilizing trusts, estates avoid courtroom involvement completely and maintain privacy by excluding details from public documents. Additionally, some leverage trusts to safeguard assets in scenarios like needing nursing home care, positioning themselves to access Medicaid-covered stays rather than self-funding.

Transfer Stocks to Heirs with Minimal Tax Impact

Picture yourself as a shareholder in a high-flyer like Nvidia, whose value has skyrocketed lately. Envision harvesting the gains from selling those shares without a significant tax hit.

This becomes feasible under one specific condition: your passing.

This mechanism, termed the “step-up in basis” within estate planning circles, empowers wealthy dynasties to amplify their riches across generations, sparing successors from inheritance tax woes.

Here’s how it operates: Suppose your astute uncle snapped up 100 Nvidia shares back in 1999 when they debuted at $12 each. Accounting for stock splits and explosive growth, that initial $1,200 outlay now exceeds $9 million in value. Upon inheritance, selling those shares incurs little to no capital gains tax, as the basis resets to the fair market value on the date of his death—not the original purchase date.

Benjamin Trujillo, a partner at Moneta, a wealth advisory firm in St. Louis, Missouri, describes it as “nothing short of a magician’s illusion.” Yet it’s fully compliant with current laws.

“The process of generational wealth transfer often feels illusory,” Trujillo observes. “Holdings such as equities can appreciate silently over years, and upon inheritance, the associated tax obligations frequently vanish into thin air.”

Although legislators have floated reforms to curb this “step-up” provision periodically, it endures for the time being, ranking among the most potent tools for building lasting family wealth. Beyond stocks, the benefit extends to diverse assets like fine art, property, and rare collectibles.

Maintain Current Beneficiary Designations

Have you ever encountered a notification on your financial account urging you to designate a beneficiary? Far from mere irritation or confusion, estate experts highlight this as one of the most straightforward methods to facilitate smooth asset transfers post-mortem.

Rules differ by jurisdiction and institution, but numerous banks and investment firms permit naming a beneficiary who receives the account balance directly upon your death.

“It ranks among the simplest routes to hassle-free asset conveyance,” affirms Allison Harrison, an Ohio-based attorney in Columbus specializing in estate matters.

Importantly, beneficiary designations typically supersede instructions in a will, underscoring the need for regular reviews to prevent mishaps—like an estranged former spouse unexpectedly claiming your entire savings.

All these measures demand proactive effort, but professionals emphasize that dedicating time to orchestrate your estate distinguishes the prosperous from others.

“Families with substantial means engage in deliberate planning,” Fry asserts. “They safeguard their assets and choices rather than leaving them exposed.”