There are several ways you might reduce your estate, including spending assets, giving assets away, buying life insurance and putting assets in trusts. For most people who are impacted by the estate tax, trusts are integral to reducing an estate's size and may help to reduce estate taxes.
There are 2 primary methods of transferring wealth, either gifting during lifetime or leaving an inheritance at death. Individuals may transfer up to $13.99 million (as of 2025) during their lifetime or at death without incurring any federal gift or estate taxes. This is referred to as your lifetime exemption.
Step 2: Borrow Against Assets
The family does NOT owe taxes on its asset-leveraged loans because the government doesn't tax borrowed money. Wealthy family uses its untaxed wealth to access significant amounts of untaxed cash to live luxuriously while continuing to grow its wealth, untaxed, indefinitely.
If you leave a gift to a qualifying charity in your will, whether it's money, property or another asset, it will be exempt from Inheritance Tax. This is one way of reducing the size of your estate and lowering the amount of IHT owed when you die.
The best way to avoid the inheritance tax is to manage assets before death. To eliminate or limit the amount of inheritance tax beneficiaries might have to pay, consider: Giving away some of your assets to potential beneficiaries before death. Each year, you can gift a certain amount to each person tax-free.
You can transfer assets to the trust while getting an annuity payment. If the assets in the trust appreciate enough, you can pass that excess value to your heirs with little or no tax. GRATs are a popular wealth transfer strategy with ultra-wealthy Americans.
In some years, billionaires such as Jeff Bezos, Elon Musk and George Soros paid no federal income taxes at all. Billionaires avoid these taxes by taking out special ultra-low-interest loans available only to them and using their assets as collateral.
Instead, they can take loans against their shares. Securities based lending, securities based lines of credit, home equity lines of credit and structured lending are options for leveraging assets without selling them. These loans tend to have relatively low interest rates because they are collateralized.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
In both scenarios, using a Qualified Personal Residence Trust (QPRT) may be the best strategy. A QPRT transfers an interest in the property to a trust for your children but gives you control over the property. However, you or your children must live in it during the QPRT term.
One type of trust that helps protect assets is an intentionally defective grantor trust (IDGT). Any assets or funds put into an IDGT aren't taxable to the grantor (owner) for gift, estate, generation-skipping transfer tax, or trust purposes.
The trust fund loophole refers to the “stepped-up basis rule” in U.S. tax law. The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset.
Billionaires (usually) don't sell valuable stock. So how do they afford the daily expenses of life, whether it's a new pleasure boat or a social media company? They borrow against their stock. This revolving door of credit allows them to buy what they want without incurring a capital gains tax.
Current tax law does not allow you to take a capital gains tax break based on your age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales, though this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
He noted that there are two things the government does not tax: unsold assets, even if they appreciated, and debt. And since debt is not taxed, it makes sense to avoid capital gains taxes on assets that have appreciated by borrowing against them.
“Companies are allowed to 'carry forward' excess losses to years with profits, with the old losses canceling out current earnings,” the report explains. That's how Tesla, which last year made $10 billion in profit on $96 billion in revenue, was able to pay no federal income tax.
More rich people are using 'secret' trusts and LLCs to hide money from their spouses. Secret trusts and LLCs are increasingly common ways wealthy people are shielding assets in divorce. Trusts and offshore accounts controlled by a shadowy company.
You can assign a portion of your wealth to charitable trusts of two types: lead trusts and remainder trusts. Your estate, such as investments, hard assets, and even cash, can be allocated to a trust in the form of charitable donations. Most billionaires and ultra-rich individuals use this strategy for tax planning.
No, once you transfer assets into an irrevocable trust, they are no longer considered your property for tax purposes and are generally protected from IRS seizure.