Ultra-high-net-worth families face tax challenges that are fundamentally different from even affluent households. With significant wealth comes complexity—multiple business entities, international holdings, family trusts, charitable foundations, and the constant balance between wealth preservation and intergenerational transfer.
The UHNW Tax Landscape
When your wealth reaches the level where estate planning involves federal estate tax exposure, international compliance requirements, and sophisticated entity structures, traditional tax preparation is insufficient. You need forensic-level planning that considers:
- Multi-generational wealth transfer strategies that minimize transfer taxes while maintaining family control
- Coordination between income tax, estate tax, gift tax, and generation-skipping transfer tax regimes
- International tax compliance for families with cross-border assets and activities
- Charitable giving structures that achieve philanthropic goals with maximum tax efficiency
Estate Tax Planning: Beyond Basic Strategies
For estates exceeding the federal exemption amount (currently $13.61 million per individual in 2024), sophisticated planning is essential. While basic strategies like annual gift exclusions and exemption utilization are important, UHNW families require more advanced techniques.
Grantor Retained Annuity Trusts (GRATs)
GRATs allow you to transfer appreciating assets to future generations while retaining an annuity stream. If the assets appreciate faster than the IRS-assumed rate (Section 7520 rate), the excess appreciation passes to beneficiaries gift-tax-free. For families with concentrated stock positions or rapidly growing businesses, GRATs can transfer substantial wealth with minimal gift tax cost. However, they require careful structuring and ongoing administration.
Intentionally Defective Grantor Trusts (IDGTs)
These trusts are "defective" for income tax purposes (meaning the grantor pays the tax) but complete for estate tax purposes (removing assets from the taxable estate). This allows you to transfer assets while continuing to pay the income tax on trust earnings—effectively making additional tax-free gifts to beneficiaries. IDGTs are particularly powerful for assets expected to generate significant income or appreciation.
Family Limited Partnerships (FLPs)
FLPs allow you to consolidate family assets, maintain control through the general partnership, and transfer limited partnership interests to family members at discounted values due to lack of control and marketability. However, FLPs face intense IRS scrutiny. They must be properly structured with legitimate business purposes and cannot be mere tax avoidance devices.
The Importance of Forensic Documentation
Advanced estate planning strategies are only effective if they can withstand IRS scrutiny. Our forensic approach means every strategy is supported by comprehensive documentation, legitimate business purpose, proper valuation, and compliance with all technical requirements. We've seen poorly executed plans unravel during audits, costing families millions in taxes and penalties.
International Tax Compliance
UHNW families often have international dimensions—foreign bank accounts, overseas real estate, business operations abroad, or family members living internationally. This creates complex compliance obligations that carry severe penalties for non-compliance.
FBAR and FATCA Reporting
If you have foreign financial accounts exceeding $10,000 in aggregate, you must file FinCEN Form 114 (FBAR) annually. Additionally, Form 8938 (FATCA) requires reporting of specified foreign financial assets exceeding certain thresholds. Penalties for non-compliance can reach 50% of account balances—devastatingly high for UHNW individuals. We ensure complete compliance with both requirements, including proper reporting of foreign trusts, partnerships, and corporations.
Controlled Foreign Corporations (CFCs)
U.S. shareholders of controlled foreign corporations face complex tax rules including Subpart F income, Global Intangible Low-Taxed Income (GILTI), and various reporting requirements (Forms 5471, 8992, etc.). Failure to properly report CFC income and activities can result in significant penalties and unfavorable tax treatment.
Foreign Trust Reporting
U.S. persons with foreign trusts—whether as grantor, beneficiary, or fiduciary—face extensive reporting requirements (Forms 3520 and 3520-A). The penalties for late or incomplete filing are severe: the greater of $10,000 or 35% of gross reportable amount. For UHNW families with international structures, perfect compliance is essential.
Income Tax Planning for Complex Structures
UHNW families often have income flowing from multiple sources through complex entity structures. Strategic planning can significantly reduce current tax liability while maintaining flexibility.
Entity Structure Optimization
The choice between C corporations, S corporations, partnerships, and LLCs has profound tax implications. For UHNW families, we often see opportunities to restructure entities to:
- →Optimize qualified business income (QBI) deductions under Section 199A
- →Maximize basis step-up opportunities for heirs
- →Facilitate estate planning while minimizing current tax
- →Separate high-liability activities from family wealth
Investment Income Planning
UHNW investors face the 3.8% Net Investment Income Tax (NIIT) on top of regular income tax rates. Strategic planning around timing of income recognition, characterization of income (ordinary vs. capital gains), and use of tax-advantaged vehicles can reduce this burden. For private equity and hedge fund investors, understanding partnership tax allocations and carried interest treatment is essential.
Charitable Giving Strategies
UHNW families often have significant philanthropic goals. Proper structuring achieves both charitable and tax objectives.
Private Foundations
Private foundations provide maximum control over charitable giving while creating immediate income tax deductions. However, they come with strict operating rules, excise taxes on investment income, and extensive reporting requirements. We help families determine if a private foundation makes sense given their philanthropic goals and administrative willingness.
Donor-Advised Funds (DAFs)
DAFs provide many benefits of private foundations with less administrative burden. They're particularly useful for bunching charitable deductions in high-income years or donating appreciated securities to avoid capital gains tax. For many UHNW families, a combination of private foundation and DAFs provides optimal flexibility.
Charitable Remainder Trusts (CRTs)
CRTs allow you to convert highly appreciated assets into income streams while avoiding immediate capital gains tax and obtaining a current charitable deduction. For UHNW individuals with concentrated stock positions or appreciated real estate, CRTs can be powerful planning tools—but they require careful design and ongoing administration.
State and Local Tax Planning
For UHNW families, state tax planning can save millions. With top state income tax rates exceeding 13% in California and New York, strategic residency planning is valuable. However, states aggressively audit domicile changes, and mistakes can result in dual-state taxation plus penalties.
We help families properly establish domicile in favorable states through comprehensive documentation of ties—physical presence, driver's licenses, voter registration, professional advisors, social connections, and "center of vital interests." This forensic documentation is essential for defending against residency audits.
Need UHNW Tax Planning?
If your family faces complex wealth transfer, international compliance, or sophisticated income tax planning challenges, our forensic approach ensures strategies are both tax-efficient and audit-proof.