Where can I learn more about estate planning, trust funds, and managing assets?

How do billionaires reduce taxes for their heirs and manage their wealth across a bunch of organizations and trust funds?

Anyone familiar "family offices" that seem to be family investment firms run by the family members to manage their assets?

A lot of people advise against financial advisors, but what do billionaires do? They must be spending big bucks on lawyers and financial planning.

I'm curious as I was reading about the trust fund set ups used by very wealthy families and realized there is some whole other world out there of family wealth management that I'm unaware of. Is there a minimum asset threshold needed for these complex trust fund and family office arrangements to be worthwhile?

Heckerling Institute on Estate Planning is the best I know about. Haven't attend myself, but know folks that do and get updates following the annual conference.

In my view it is less about a critical asset level and more about wealth trajectory. In some case strong goals/views pull thresholds lower.

There are a lot of ideas that center around concepts of "freezing" and "reducing" estate size. Those are good terms to research to gain your bearings. Tax avoidance is a whole different beast and most of the time is just playing a game of whack-a-mole with the IRS. There are exceptions where income taxes can be greatly reduced, in certain circumstances (i.e. EDC in USVI, 90% reduction of US income taxes, fully sanctioned by IRS if certain conditions met).

Ex-pat and offshoring can make sense, but I've actively explored and found it hard to make a case for even with Net Worth @ $50-$75M and growing. The arguments I could see for ex-patriating at that level involved some pretty dour views on US income taxation/wealth tax/etc...

From a reduction standpoint, the easiest solutions include giving to charity during life and at death. A client worth well over $100M was one of the easiest from an estate planning perspective. They gave over 95% to charity at their passing.

In regard to freezing, another path is creating businesses and investments outside of the estate. Imagine starting a business with high growth potential outside of your estate. If it, or even one of a few like it, hit big, estate tax exposure at generation 1 can be avoided.

Another potential way to reduce estate tax exposure (when there is already excess wealth), is having generation 1 pay income taxes on assets that are out of their estate. This concept is an IDGT or Intentionally Defective Grantor Trust. This is an area under IRS scrutiny, but still heavily used.

FLPs are another method, especially if there will be lifetime gifts of interests to future generations. These aren't as effective as they used to be. I've worked on cases with Norm Lofgren (Stangi case, among others) a number of times, including currently. Per he, John Bergner and other leading estate planning attorneys, there are still paths to use the FLP they just need to be truly treated like a bonafide business. FLPs work best when there are varied asset types.

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Imagine starting a business with high growth potential outside of your estate. If it, or even one of a few like it, hit big, estate tax exposure at generation 1 can be avoided.

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Can you elaborate on this point?

I have read that some trusts put high growth equity / shares into a trust, then take out the principal over time, leaving the growth tax free within the trust. Is that what you are referring to?

Unless your estate exceeds $12.92 million in 2023 you don't need "estate planning". Assuming not, the best way to build wealth is to be frugal, work hard and save.

Azeew said:

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Unless your estate exceeds $12.92 million in 2023 you don't need "estate planning". Assuming not, the best way to build wealth is to be frugal, work hard and save.

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My questions are specifically trying to understand and learn what large estates do. Like family offices of the heirs of billionaires. How do they manage it all and minimize taxes between generations? The politicians and very rich have all sorts of legal structures the middle class have no idea about.

Two main types:

1) GRATs. These fund a trust and have a loan back to grantor (wealthy person). Investment made, growth out of estate, principal comes back as loan (with favorable terms) comes back to wealthy person.

These were abused and are less functional than they used to be due to IRS scrutiny. Longer terms required now. Higher rate environment also makes these less attractive, all else equal.

2). Just contribute assets to a trust, or found a business in a trust. Ideally wouldn't get funds back to Grantor, would be to maximize growth out of estate. Works better when founding a low-cost start up.

Have also seen businesses create a new entity structure and when key contracts come up for renewal/renegotiation, replace into the new entity. This is above my pay grade, but is a more aggressive way to get current enterprise value redirected.

How are the assets within the trust taxed. As regular capital gains? This is a non-revocable trust I assume?

bmks270 said:

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Azeew said:

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Unless your estate exceeds $12.92 million in 2023 you don't need "estate planning". Assuming not, the best way to build wealth is to be frugal, work hard and save.

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My questions are specifically trying to understand and learn what large estates do. Like family offices of the heirs of billionaires. How do they manage it all and minimize taxes between generations? The politicians and very rich have all sorts of legal structures the middle class have no idea about.

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They don't really "have legal structures the middle class have no idea about". All the legal structures are known (ie bypass trusts, generation skipping trusts, SCorps, family limited partnerships, limited partnerships, etc). What matters is "when does the expense to create and maintain the entity justified by the tax savings". Fundamentally, if I was starting a new family business today I'd form an SCorp or Limited Partnership rather than a CCorp (even though the CCorp tax rate is relatively low now). As it relates to Trusts, those really aren't financially necessary unless today's estate exceeds $12.92 million.

Also, SLATs (Spousal Lifetime Access Trusts) play in this domain too. They are really nice, IMO, with blended families and/or possible need for Grantors to spend the money late in life. So, can get growth out of estate, but still could use some day. Ass you can imagine, that combination comes with IRS scrutiny and thus well drafted trusts.

interestingly (to me) one of the key ways for SLATs to stand up to IRS scrutiny is to have the Trusts by the husband and wife have some material differences, rather than a critical failure when having the Trusts substantially mirror each other. May not be that interesting to others, but I nerd out on that stuff.

Azeew said:

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bmks270 said:

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Azeew said:

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Unless your estate exceeds $12.92 million in 2023 you don't need "estate planning". Assuming not, the best way to build wealth is to be frugal, work hard and save.

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My questions are specifically trying to understand and learn what large estates do. Like family offices of the heirs of billionaires. How do they manage it all and minimize taxes between generations? The politicians and very rich have all sorts of legal structures the middle class have no idea about.

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They don't really "have legal structures the middle class have no idea about". All the legal structures are known (ie bypass trusts, generation skipping trusts, SCorps, family limited partnerships, limited partnerships, etc). What matters is "when does the expense to create and maintain the entity justified by the tax savings". Fundamentally, if I was starting a new family business today I'd form an SCorp or Limited Partnership rather than a CCorp (even though the CCorp tax rate is relatively low now). As it relates to Trusts, those really aren't financially necessary unless today's estate exceeds $12.92 million.

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What if assets will exceed that, but don't currently? Don't you want stuff in place before hand?

bmks270 said:

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How are the assets within the trust taxed. As regular capital gains? This is a non-revocable trust I assume?

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Yes, I'm talking about non-revocable Trusts or Irrevocable Trusts. Revocability is a key item the IRS looks for in their substantial control tests. If you have substantial control, the benefits of the Trusts are at risk to be invalidated.

Most everything I've talked about in this thread has to do with estate tax optimization. EDC in USVI is the one example that is an income tax reduction, but you need an active business and employees, and significant time in USVI to do that.

The wealthy can get better tax treatment because they generally don't need cash-flow. If you don't need cash-flow, you can invest more for growth and seek more LTCG treatment, or tax-sheltered treatments.

There are ways to reduce/eliminate income taxation, but those get more and more into the gray area and in a lot of cases tax avoidance. To some that is worth the risk, but those are not areas I play in, so can't speak to them as deeply.

Trusts have higher ordinary income tax burden at low income levels, due to brackets being compressed. At high income levels it doesn't matter much, or if the income is spit out. Usually not a driver in decision making, but important to be aware of.

Get you a good estate attorney.

bmks270 said:

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Azeew said:

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bmks270 said:

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Azeew said:

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Unless your estate exceeds $12.92 million in 2023 you don't need "estate planning". Assuming not, the best way to build wealth is to be frugal, work hard and save.

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My questions are specifically trying to understand and learn what large estates do. Like family offices of the heirs of billionaires. How do they manage it all and minimize taxes between generations? The politicians and very rich have all sorts of legal structures the middle class have no idea about.

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They don't really "have legal structures the middle class have no idea about". All the legal structures are known (ie bypass trusts, generation skipping trusts, SCorps, family limited partnerships, limited partnerships, etc). What matters is "when does the expense to create and maintain the entity justified by the tax savings". Fundamentally, if I was starting a new family business today I'd form an SCorp or Limited Partnership rather than a CCorp (even though the CCorp tax rate is relatively low now). As it relates to Trusts, those really aren't financially necessary unless today's estate exceeds $12.92 million.

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What if assets will exceed that, but don't currently? Don't you want stuff in place before hand?

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I guess the best answer I can give you is "it depends". There's no way to be precise about it because one has no idea what the future holds. Once again, the issue is one of opportunity cost and tax efficiency. How much do you want to spend today to ensure that thirty years from now you will have squeezed the last penny out of it. Is the squeeze worth the juice? As someone else mentions, getting a good estate planning attorney will add a lot of clarity for you and help you make good decisions. They're not going to be cheap but probably very inexpensive relative to helping you make decisions going forward. But unless your estate is currently more than $12.92 million they're not going to give you a revolutionary path.