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Tax Planning for Ultra-High-Net-Worth Individuals and Families


Proper tax planning is essential for managing and preserving wealth. For ultra-high-net-worth individuals and their families – people with $30 million in investable assets – efficient tax management requires an in-depth understanding of tax laws, methodical utilization of tax benefits and strategic planning. The support of a specialized financial advisor is often beneficial in ultra-high-net-worth tax planning, as they may offer relevant expertise in devising tax strategies for the wealthiest of families.

Tax Challenges for the Ultra-High Net Worth

Ultra-high-net-worth individuals face a unique set of tax challenges. They often find themselves subject to high tax rates and complex tax laws. Unforeseen challenges, if not aptly managed, can significantly erode the wealth of an ultra-high-net-worth family, leading to undesired financial losses and legal complications. 

The ultra-wealthy may also encounter international tax issues if assets span multiple countries, which may require adhering to various reporting standards and understanding how international tax treaties impact their liability. And while most taxpayers aren’t subject to estate and gift taxes, these levies can be significant for ultra-high-net-worth families with tens of millions in assets. 

Ultra-high-net-worth individuals also often have diverse income streams, from investments and businesses to real estate holdings. Managing and optimizing these sources of income can be incredibly complex, necessitating a comprehensive tax plan.

Tax Planning Strategy Considerations

An ultra-high-net-worth couple reviews their tax plan on a table while sitting poolside.

Here are five tax planning strategies that ultra-high-net-worth families may consider. 

Annual Gift Tax Exclusion

One effective way to reduce the taxable estate is by taking advantage of the annual gift tax exclusion. As of 2023, the IRS allows individuals to gift up to $17,000 per year per recipient without incurring any gift tax. For couples, that amount doubles to $34,000. Leveraging this exclusion can help transfer wealth to heirs without eroding the estate’s value by incurring taxes.

Lifetime Gift Tax Exemption

The lifetime gift tax exemption is another avenue to consider. Gifts that exceed the annual exclusion are permitted but they count against a person’s lifetime gift tax exemption. In 2023, that limit is $12.92 million for individuals and $25.84 million for married couples. Transferring assets exceeding this amount over the course of one’s lifetime may incur the federal gift tax. Keep in mind that this limit also applies to estates, so an estate that exceeds the $12.92 million cap will be subject to the federal estate tax. Understanding the lifetime limit and making strategic use of it can be vital for wealth preservation.

Charitable Giving

Ultra-high-net-worth families often engage in philanthropy. Charitable giving may not only benefit society but can also provide substantial tax advantages. Donating to qualified charities can result in deductions that lower taxable income. Establishing a charitable foundation or donor-advised fund can also facilitate long-term giving while optimizing tax benefits. Additionally, ultra-high-net-worth families can maximize deductions by strategically bunching charitable contributions into specific years.

Using Trusts

Trusts are versatile tools in tax planning. Irrevocable life insurance trusts, grantor-retained annuity trusts, and dynasty trusts are just a few examples. These trusts can help minimize estate tax exposure, protect assets and provide for future generations. Trusts can allow for income splitting, enabling family members to distribute income among beneficiaries in lower tax brackets and reduce the overall tax liability. However, their complexity requires careful planning and professional advice.

Risk Management

Tax planning isn’t just about minimizing taxes; it’s also about preserving wealth. Ultra-high-net-worth families should have comprehensive risk management strategies in place. This includes insurance coverage, investment diversification and estate liquidity planning to address potential tax liabilities. Strict adherence to tax regulations is also paramount for managing risk. Ultra-high-net-worth families are under increased scrutiny, so maintaining accurate records and fulfilling reporting obligations is essential to avoid costly penalties.

Estate Planning for the Ultra-High-Net-Worth

Siblings and their spouses toast after reviewing their family estate plan.

Taxes are also a vital component of an ultra-high-net-worth estate plan. Ultra-high-net-worth families should initiate estate planning early. Establishing a comprehensive plan provides ample time for adjustments and avoids last-minute decisions that may not align with family goals. Wealthy families may consider creating trusts, family limited partnerships or family limited liability companies to protect their assets and distribute wealth efficiently. These structures can offer both control and flexibility.

Since wealth portfolios evolve, families should routinely review and update their estate plans to reflect changes in assets, tax laws or family dynamics. Discussing the estate plan with family members is also vital. Transparency can prevent potential conflicts and ensure that the next generation understands the family’s values and intentions.

However, ultra-high-net-worth estate planning is intricate and demands expertise. Engaging experienced financial advisors, estate attorneys and tax professionals is crucial for a successful plan.

Bottom Line

Tax planning for ultra-high-net-worth families is a multifaceted process. It involves a combination of strategies such as leveraging the annual gift tax exclusion and lifetime gift tax exemption, engaging in charitable giving, using trusts judiciously and implementing robust risk management. To navigate this complex terrain successfully, seeking guidance from financial and legal professionals who specialize in high-net-worth tax planning is also essential. 

Tax Planning Tips

  • Taxes are a critical component of the retirement planning process. SmartAsset has a tool designed to help you assess the tax friendliness for retirees in your state and where you plan to move. 
  • Whether your family has generational wealth or is just starting out on its wealth-building journey, a financial advisor with tax experience can be a valuable resource. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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