How Do The Rich Avoid Estate Taxes? 7 Secret Strategies of the Wealthy Elite

Truly, no one wants to leave Uncle Sam a big chunk of their hard-earned cash when they die. But while most of us don’t have to worry about estate taxes, the richest people in America have made it an art to avoid them.

I’ve spent weeks learning about how billionaires and multimillionaires can leave their huge fortunes to their children and grandchildren while paying almost no estate taxes. What I learned really opened my eyes, and I’m excited to share these strategies with you today.

The Estate Tax Problem (That Most of Us Don’t Have)

Before we dive in, let’s get something straight – the federal estate tax only affects a tiny percentage of Americans. In 2025, the exemption is a whopping $1399 million per person ($2798 million for married couples). So unless your estate exceeds these amounts, you won’t owe any federal estate taxes.

But for the ultra-wealthy with fortunes in the hundreds of millions or billions, estate taxes pose a serious concern. After all the federal estate tax rate can reach up to 40% on amounts over the exemption threshold!

A ProPublica investigation found that more than half of the 100 richest people in the United States use special trusts to avoid paying estate taxes. These include business moguls like .

• Michael Bloomberg
• Charles Koch
• Leonard Lauder
• Stephen Schwarzman
• Laurene Powell Jobs (widow of Apple founder Steve Jobs)

Now let’s look at exactly HOW they’re doing it.

Strategy #1: The Almighty GRAT (Grantor Retained Annuity Trust)

As far as ways to avoid paying estate taxes go, the Grantor Retained Annuity Trust (GRAT) is the best. Because it works so well, one lawyer thought GRATs might have cost the U.S. S. Treasury about $100 billion over a 13-year period!.

Here’s how it works:

1. The wealthy person (grantor) transfers assets to a trust
2. The grantor receives annuity payments for a set period of years
3. The annuity equals the value of the assets plus a modest interest rate set by the IRS (called the 7520 rate)
4. Any appreciation above that interest rate passes to heirs tax-free

The genius of the GRAT is that it’s a “heads I win, tails we tie” situation. If your assets grow faster than the IRS interest rate (which has historically been between 2.5-3.6%), your heirs get the excess growth tax-free. If they don’t grow enough, you just try again with a new GRAT. There’s virtually no downside!

Consider this real-world example: Let’s say you have a $10 million business that grows at 20% annually. Over 10 years in a GRAT, you could pass approximately $73 million to your heirs estate-tax free. That’s an estate tax savings of about $29 million!

Strategy #2: Family Limited Partnerships (FLPs)

Another favorite of the ultra-wealthy is the Family Limited Partnership. This is particularly useful for family-owned businesses or real estate.

With an FLP:

• You establish a general partnership and make family members limited partners
• As the general partner, you maintain control of the assets
• Your family members own portions of the assets as limited partners
• This reduces the size of your estate

The beauty is you still call all the shots while technically reducing your ownership stake (and thus your taxable estate).

Strategy #3: Strategic Gifting Programs

The simplest way to reduce your taxable estate is simply giving away parts of it during your lifetime:

• In 2025, you can give up to $19,000 per person annually without paying gift tax ($38,000 for married couples)
• You can give these gifts to as many different people as you want
• Over your lifetime, you can give up to $13.99 million before hitting the gift tax

Many wealthy individuals systematically gift assets to children, grandchildren, nieces, nephews and other family members each year. By starting early and being consistent, they can transfer millions tax-free.

Strategy #4: Irrevocable Life Insurance Trusts (ILITs)

Life insurance proceeds aren’t usually taxable, but they can become part of your estate. The solution? An irrevocable life insurance trust.

By transferring your life insurance policy to an irrevocable trust:

• The death benefit isn’t included in your taxable estate
• Your beneficiaries still receive the full benefit

One important note: this transfer must happen at least three years before your death, or the IRS will still count it as part of your estate.

Strategy #5: Charitable Lead Trusts and Charitable Remainder Trusts

Many wealthy individuals use charitable trusts as a dual-purpose strategy – helping good causes while reducing their taxable estates:

Charitable Lead Trust (CLT):

• Assets go to charity for a set period
• Remainder passes to your beneficiaries
• You get an immediate tax deduction
• Your estate size is reduced

Charitable Remainder Trust (CRT):

• You transfer an appreciating asset to the trust
• You receive income from the asset during your lifetime
• After death, the remainder goes to charity
• You avoid capital gains tax and reduce your estate tax burden

Strategy #6: Qualified Personal Residence Trusts (QPRTs)

For the wealthy with valuable homes, a QPRT offers significant tax advantages:

• You transfer your home to a trust while retaining the right to live there
• After a specified term, ownership passes to your beneficiaries
• The home’s value is “frozen” at its current market value
• The future appreciation happens outside your estate

This is particularly valuable for homes in areas with rapidly appreciating real estate values.

Strategy #7: Zeroed-Out GRATs

This is actually a specialized form of the GRAT we discussed earlier, but it’s so powerful it deserves special mention.

With a zeroed-out GRAT:

• The annuity payment is structured to exactly equal the value of the assets transferred
• This results in a gift tax value of zero (hence “zeroed-out”)
• All appreciation above the IRS interest rate passes to heirs tax-free

According to ProPublica, this tactic was used by Laurene Powell Jobs to pass around half a billion dollars to her children, friends and family – avoiding at least $200 million in estate and gift taxes.

Do These Strategies Actually Work?

You bet they do! The evidence is overwhelming:

• Herb Simon, founder of America’s biggest shopping mall empire, has created dozens of GRATs since 2000 – often more than one per year
• According to tax records obtained by ProPublica, Michael Bloomberg repeatedly cycled pieces of his private company in and out of GRATs over a dozen years
• The ultra-wealthy routinely use combinations of these strategies to minimize or eliminate estate taxes entirely

Why Haven’t These Loopholes Been Closed?

Good question! The GRAT loophole was actually created accidentally by Congress in 1990 when they tried to close another estate tax loophole. The IRS challenged it, but lost in court.

In 2021, Congress was considering legislation that would defang GRATs and other trusts as part of President Biden’s domestic agenda. However, whether any reform will actually happen remains uncertain.

What Does This Mean For You?

If your estate is worth less than the exemption amount, you don’t need these complex strategies. But there are still valuable lessons here:

1. Start estate planning early – even the ultra-wealthy can’t implement these strategies on their deathbed
2. Consider working with a qualified estate planning attorney and financial advisor
3. If your estate is growing and might eventually exceed exemption amounts, familiarize yourself with these strategies
4. Remember that state estate taxes might apply even if federal ones don’t

For those with substantial wealth approaching or exceeding the exemption thresholds, consulting with an estate planning professional is absolutely worth the investment.

Should We Be Concerned About This?

I think it’s worth asking whether these loopholes should exist. When billionaires use complex trusts to avoid taxes that were specifically designed to prevent the concentration of dynastic wealth, is that fair to the rest of us?

Laurene Powell Jobs herself has publicly stated she’s “not interested in legacy wealth buildings” and has decried early 20th century fortunes as “dangerous for society.” Yet she utilized these same strategies to pass half a billion dollars to her heirs tax-free.

Final Thoughts

Estate planning is a complex field, and the strategies used by the ultra-wealthy aren’t for everyone. But understanding how the system works – and who benefits most from its complexities – gives us valuable perspective.

If you’re fortunate enough to need estate tax planning, remember that a good estate planning attorney will cost between $2,000-$10,000 – but could save your heirs millions in taxes. That’s what I’d call a good investment!

What’s your take on these estate tax avoidance strategies? Are they smart financial planning or unfair loopholes? Drop a comment below – I’d love to hear your thoughts!