How do Billionaires Avoid Estate Taxes? —Pillar Wealth Management

A huge chunk of high-net-worth individuals’ wealth can be lost to estate taxes if they don’t plan properly. So,how do billionaires avoid paying estate taxes? If you’re a high-net-worth individual beginning on your estate planning journey, then you may have wondered,”how much do billionaires pay in estate taxes?”The answer varies based on a number of factors that we’ll discuss below.

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STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION

7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning


The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.

Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.

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If you’re a billionaire or a high net worth individual, this means you have worked a great deal to make your and your family’s future financially secure. Therefore, you need to be proactive about your wealth management and tax planning.Pillar Wealth Management can help! Our experienced wealth management professionals specialize in estate planning for investors with $5 million to $500 million in liquid assets. Grab a free copy of our book titled 7 Secrets To High Net Worth Investment Management, Estate, Tax, and Financial Planning to get more in-depth insight into estate planning.

You can also schedule a free consultation with one of our wealth managers and get started with estate tax planning right away! Keep reading below to know more about estate taxes.

What is the Current Rate of Estate Tax Exemption?

The federal government charges a tax of 40% of the value of all assets that falls within the wealth transfer category. Additionally, your state may tax your wealth further, so you need to make sure that you are familiar with your state’s current tax regulations.

For 2021, there is an exemption of $11.7 million for an individual and $23.4 million for a married couple. This means that an amount below these numbers will not be taxed, and anything exceeding the exemption limit will be imposed the 40% federal tax on the estate value.

Another helpful inheritance or estate tax law to keep in mind is the 7-year rule. If you are alive for longer than seven years after giving any gifts, no tax will be due on them, except if the gift is already a part of a trust. This simple regulation is known as the 7-year rule in inheritance tax.

This means the earlier your start planning your estate and strategizing estate tax, the better. If you don’t live past the seven years of giving a gift, an inheritance tax will be applied to it based on the time you gave the gift.

For instance, gifts that are given within three years before a person’s death are imposed a 40% tax. The gifts that you gave between 3 and 7 years before your death are taxed based on a “taper relief,” which is a sliding scale. There is also an estate tax imposition on gifts with reservation. These are the gifts that you gave away but still benefit from in some way. Examples of gifts with reservation include homes that you give as gifts but still live in, caravans you continue to use for free regularly, and gift paintings that still hang in your house.

How do the Wealthy Avoid Paying Estate Taxes?

If you have ever wondered what are two methods for avoiding  estate tax, then we can help. Although it is not practically possible to avoid estate taxes entirely, you can still minimize them considerably if you’re strategic about your estate planning.

Besides income tax, the other three types of taxes are called wealth transfer taxes. The federal government charges a tax of 40% of the value of all assets that falls within the wealth transfer category. Additionally, your state may tax your wealth further, so you need to make sure that you are aware of your state’s current tax regulations.

Keep reading below to find out how you can minimize or avoid estate tax by capitalizing on the existing regulations.

1.     Consider Moving to a State with no Estate Tax

If you think about it, making a move to another state can really be beneficial for you. If you currently live in a state that imposes estate taxes in addition to the federal tax, then moving to a state that doesn’t impose an estate tax would be your best option. This way, you can avoid paying additional estate tax without much trouble. 

However, there is one thing that you must be careful of if you own properties in multiple locations. Your residency status depends on a lot of factors, and if you’re not careful and fully aware of the regulations, you can find yourself in court for tax evasion, which is why it is essential to have professional wealth managers and estate planners to consult with on these matters.

2.     Establish a Trust Fund

If you follow the news related to billionaires and high net worth individuals, you may have noticed that they all run some kind of trust. A highly effective method of preserving your wealth is to establish trust. 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. Access our Financial Advisor Guide to help you choose the right best wealth manager for you.

For example, if you own a property, and you assign it to a trust, the proceeds of its sale will go into the trust instead of counting towards your estate. Consider speaking to a wealth management or estate planning professional for advice on starting a trust fund. To set up a trust, make sure you hire a team of professionals, which includes an estate attorney, tax accountant, and wealth manager, to ensure that the best decision is made to protect your wealth and estate.

3.     Get an Irrevocable Life Insurance Trust

One of the things that we highly recommend doing early on is to buy a life insurance policy with a death benefit amount that would cover most of the estate tax that is likely to be imposed on your estate. This strategy is simple yet effective. Your heirs will be able to pay the estate taxes without dealing with major cuts in their inheritance. Although this strategy doesn’t avoid tax, it helps your heirs pay it without loss.

To learn more about wealth and estate management, get your hands on a free copy of our book 7 Secrets to High-Net-Worth Investment Management, Estate, Tax, and Financial Planning.

4.     Divide Income Among Family

Another great way to minimize your high-net-worth tax burden is to divide yourwealth among your family members. As per the structure of the US tax system, high-income earners must pay higher taxes. The family’s overall tax burden will be significantly reduced if you divide the wealth among the low-income earners of your family. You could end up saving thousands of dollars this way.

While these were some effective strategies to minimize the tax you pay on your hard-earned wealth, nothing beats the power of expert advice. Use our Financial Advisor Guide to choose the best wealth manager who can help you further minimize the tax burden.

5.     Establish a Donor Advised Fund

A Donor Advised Fund is similar to a health savings account. It is a dedicated account for your investments to grow without taxation. The purpose of the fund is to donate money to charity. However, you still have control over the amount and where it goes. In the future, your heirs will be transferred the managing rights for the same fund.

When money is put into a donor advised fund, it is deducted from your estate’s value, which means that you will get a good tax break in the years to come. You can learn more about estate taxes by requesting a free copy of our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning.

how do billionaires avoid paying estate taxes

6.     Invest in a Startup

Another way to transfer your wealth to your heirs securely is to invest in a business that they co-own. You can either start your own business or invest in a startup with an arrangement that gives your heirs co-ownership.

Although this option is not a certain or instant solution to the estate tax issue, it still allows you to reduce the value of your estate while offering a high potential for long-term success. To get a deeper insight into how to protect your wealth and the importance of risk management, get a free copy of our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million.

Estate Planning Strategies for Billionaires

To ensure that your beneficiaries receive the maximum benefit from your estate, you need to plan your estate strategically. If your net worth exceeds $25 million, be sure to read our hardcover book,the Art of Protecting Ultra-High Net Worth Portfolios and Estates: Strategies for Families worth $25 million to $500 million.At Pillar Wealth Management, estate planners protect the assets and estate of their wealthy clients in the following ways.

1.     Build a Business Succession Plan

If you’re a high-net-worth individual with a business, you may want to pass it on to capable children or grandchildren as part of your estate planning. One of the most critical estate planning strategies for you is to plan for business succession proactively. If you have a business successor in mind, get them involved in business affairs as early as possible.

This transitional period should span 5 to 10 years, during which they can gain hands-on experience, understand day-to-day operations, and take responsibility for decision-making. By the end of this period, they should be ready to head your business when you retire, or after your death, and take it to the next level. To learn how to make your business succession a seamless transition, sign up for a video meeting with our wealth managers.

2.     Invest in Life Insurance

Life insurance is a significant consideration in estate planning for high-net-worth individuals, with regards to bequeathing funds or assets to family members and paying estate taxes.

If a substantial portion of your estate is tied up with illiquid assets such as real estate or a business, it will likely accrue more in taxes than its liquid net worth. Most of this taxation expense can be covered by a good life insurance policy. This way, your beneficiaries won’t have to sell the real estate or businesses to pay the estate taxes.

Life insurance can also help if you’re faced with an even distribution of assets among your beneficiaries. For instance, if you consider one of your children capable of inheriting your high-valued business, your life insurance policy can pay out additional compensation to your other children.

Concluding Thoughts

Avoiding or minimizing estate taxes requires careful consideration and an in-depth understanding of government regulations and tax law in the context of high net worth. To protect your wealth, you need to work with experienced professionals who have the expertise required to manage high-profile clients.

At Pillar Wealth Management, our experts take a keen interest in protecting your long- and short-term interests and your wealth. We specialize in services for investors with assets worth from $5 million to $500 million. To talk to a professional estate planner, schedule your first free meeting today!

To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.

We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.

You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.

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