How do the rich use trusts to avoid taxes?
Asked by: Evan Wiza I | Last update: February 14, 2026Score: 4.4/5 (60 votes)
The wealthy use trusts to avoid taxes primarily by removing assets from their taxable estate for estate/gift taxes and shifting income to lower tax brackets, using strategies like Grantor Retained Annuity Trusts (GRATs) for asset growth, Intentionally Defective Grantor Trusts (IDGTs) to pay taxes on assets that grow tax-free for heirs, and Charitable Remainder Trusts (CRTs) for income and estate deductions, all while leveraging rules like the stepped-up basis to avoid capital gains.
Where do wealthy take their money to avoid taxes?
Wealthy family borrows against its assets' growing value and uses the newly available cash to live off or invest in other assets, like rental properties. The family does NOT owe taxes on its asset-leveraged loans because the government doesn't tax borrowed money.
How did the Duttons avoid the inheritance tax?
What about the taxes? John choosing to restrict development of the Yellowstone with a conservation easement reduces the ranch's value, thereby eliminating or vastly shrinking the estate taxes due at John's death.
Why do wealthy people use trusts?
Some of the ways trusts might benefit you include: Protecting and preserving your assets. Customizing and controlling how your wealth is distributed. Minimizing federal or state taxes.
What is the tax loophole for trusts?
The primary "trust loophole" often discussed involves the stepped-up basis, allowing beneficiaries to inherit assets like stocks or real estate with a new cost basis equal to the fair market value at the owner's death, effectively eliminating capital gains tax on prior appreciation when sold. Other strategies include Intentionally Defective Grantor Trusts (IDGTs), which separate income tax (paid by grantor) from estate tax (avoided by trust assets), and using Generation-Skipping Transfer (GST) tax exemptions with dynasty trusts to shield wealth for generations.
How to Use Trusts to Protect Your Wealth
What is the 7 year rule for trusts?
If you die within 7 years of making a transfer into a trust your estate will have to pay Inheritance Tax at the full amount of 40%. This is instead of the reduced amount of 20% which is payable when the payment is made during your lifetime.
How do people avoid taxes with trusts?
You can move assets to an irrevocable trust to lower the size of your taxable estate. The grantor retained annuity trust, intentionally defective grantor trust, charitable remainder trust, and dynasty trust are trusts commonly used to minimize estate taxes.
Where do millionaires keep their money if banks only insure $250k?
Millionaires keep money above the FDIC limit by spreading it across multiple banks, using networks like IntraFi (CDARS/ICS) for insured deposits, diversifying into non-bank assets like stocks, bonds, real estate, and gold, or using private banks with wealth management, and even offshore accounts for secrecy/tax benefits. They focus on diversification and liquidity, not just bank insurance.
What does Suze Orman say about trusts?
Suze Orman, the popular financial guru, goes so far as to say that “everyone” needs a revocable living trust. But what everyone really needs is some good advice. Living trusts can be useful in limited circumstances, but most of us should sit down with an independent planner to decide whether a living trust is suitable.
What is the 5% rule for trusts?
The 5 by 5 rule allows a beneficiary of a trust to withdraw up to $5,000 or 5% of the trust's total value per year, whichever amount is greater. This withdrawal can occur without the amount being considered a taxable distribution or inclusion in the beneficiary's estate, which can have significant tax advantages.
Who currently owns 6666 Ranch?
The legendary 6666 Ranch (Four Sixes Ranch) in Texas is owned by a group led by Taylor Sheridan, the creator of Yellowstone, who purchased the historic property in 2022 after it was sold by the Burnett family estate. Sheridan, a screenwriter and producer, acquired the vast ranch for cattle, horse breeding, and as a filming location, including for his Yellowstone spin-off series also named 6666.
How do rich families avoid inheritance taxes?
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.
How much does Paramount pay to use Chief Joseph Ranch?
Paramount reportedly pays Yellowstone creator Taylor Sheridan around $50,000 per week to use his ranches, including the Chief Joseph Ranch (which stands in for the Dutton Ranch) and his Texas properties, as filming locations and for actor training. This fee is part of a lucrative deal where Sheridan leverages his properties for the show, providing significant income from the series production itself.
How does Mark Zuckerberg avoid taxes?
MARK ZUCKERBERG
Such dividends are taxed annually. Instead, Facebook shareholders--prominently including Zuckerberg--make their money through the increase in the stock's value, which under current tax law may never be taxed.
How much an hour is $70,000 a year after taxes?
$70,000 a year is about $33.65 per hour before taxes, but after federal, state (varies), FICA, and potential deductions (like 401k, insurance), your take-home hourly pay could be closer to $21-$27 per hour, depending heavily on your location and withholdings, with estimates suggesting annual take-home of $43,500 to $52,000.
How does Jeff Bezos avoid taxes?
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.
What is the 5 year rule for trusts?
The "5-year trust rule" primarily refers to the Medicaid Look-Back Period, requiring assets transferred to certain trusts (like irrevocable ones) to be done at least five years before applying for Medicaid long-term care to avoid penalties, preventing asset dumping; it also relates to the IRS's "5 by 5 Rule" for trust distributions, allowing beneficiaries to withdraw 5% or $5,000 annually, and occasionally refers to tax rules for pre-immigration foreign trusts.
Does Dave Ramsey recommend a will or trust?
For most people with a net worth under $1 million, a simple will is enough. Wills pretty much always go through probate, but a trust, if you set it up right, can help you avoid probate.
What is the average IRA balance for a 70 year old?
The average IRA balance for a 70-year-old varies significantly by source, but generally falls in the low to mid hundreds of thousands, with averages often cited around $250,000 to over $1 million, while median balances (which are better indicators due to high earners skewing averages) are much lower, sometimes under $100,000, though some sources show medians for the 65-74 bracket around $200,000. Key takeaway: Averages are high due to outliers, but the typical 70-year-old has substantially less saved, making median figures more realistic, with Social Security playing a crucial role.
What bank account can the IRS not touch?
The IRS can generally levy any account in your name for unpaid taxes, but they can't touch funds from certain sources, like some disability/veterans benefits, child support, or welfare payments, and must give notice before seizing bank funds, often protecting essential living funds or basic necessities like work tools and clothing. While no bank account is completely "IRS-proof," trusts, LLCs, and accounts not in your name offer more protection, and the IRS must follow specific steps and hardship rules before seizing funds.
What is the 70% money rule?
The 70% money rule typically refers to the 70/20/10 budgeting strategy, where 70% of your after-tax income covers essential living expenses (needs like housing, food, transport) and discretionary spending (wants like entertainment), while 20% goes to savings/investments, and 10% to debt repayment or donations, though these percentages can be adjusted to fit personal financial situations. Another use is estimating retirement needs, suggesting you'll need about 70% of your pre-retirement income to maintain your lifestyle.
Why shouldn't I put my house in a trust?
A: Among the disadvantages of putting your house in a trust in California is the cost associated with creating the trust. Additionally, if the trust in which you put your house is an irrevocable trust, you lose a certain level of control because the terms of the trust cannot be changed in most cases.
How much can you inherit from your parents without paying taxes?
Children can generally inherit a large amount tax-free due to the high federal estate tax exemption (around $13.99M in 2025, rising to $15M in 2026), meaning the estate pays tax, not the child. However, beneficiaries might pay capital gains tax on inherited assets (like stocks) if they sell them for a profit, and some states have separate inheritance taxes (e.g., Pennsylvania, Nebraska, Iowa, Kentucky, Maryland), so checking state laws is crucial.
What is the trust tax loophole?
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.