Key Points:
- Proactive high net worth tax strategies are essential to minimize your tax burden under new tax laws.
- The federal estate tax exemption offers a massive opportunity for tax-free wealth transfer.
- Specialized trust structures allow wealthy families to move asset growth out of their taxable estates without using up their lifetime exemptions.
More money, more tax problems.
As your assets grow, so does the complexity of maintaining them, particularly when you become a high-net-worth-individual (HNWI).
Generally, the SEC defines a HNWI (also known as a “qualified client”) as someone with at least $1.1 million in assets under management or a net worth exceeding $2.2 million. If you fall into this category, you are likely facing some type of wealth tax that requires sophisticated tax strategies.
1. Income Tax: Mastering the Alternative Minimum Tax (AMT)
One of the most effective high net worth tax strategies involves planning around the Alternative Minimum Tax.
AMT is essentially a “backup” tax system designed to ensure that high earners don’t use too many deductions to avoid paying their fair share. Under this rule, you calculate your income tax bill twice—once using standard rules and once using stricter AMT rules that disallow many common deductions—and then you pay whichever amount is higher.
In 2026, the AMT is more relevant because the income thresholds where its protections “phase out” have dropped, meaning more people in the $500,000 to $1 million income range may get hit with the tax. High earners must use strategies like charitable “bunching” or municipal bond investing to keep their taxable income below the “cliff” where these protections disappear.
For 2026, the AMT exemption — the set amount of your modified adjusted gross income that is legally shielded from AMT — has risen to $90,100 for single filers and $140,200 for those married filing jointly.
2. Estate Tax: Utilizing the $15 Million Estate Tax Exemption
Did you know that at the federal (and sometimes state) level, you are taxed on your net worth? This is called the estate tax.
Fortunately, if your wealth is below $15 million ($30 million for married couples), you are not subject to the tax.
This $15 million exemption is one of the most powerful high net worth tax strategies available today. It allows for a massive amount of wealth to be transferred to the next generation completely tax-free!
Any estate value above this limit is hit with a flat 40% tax rate.
If your estate is inching above that $15 million exemption, keep reading to discover effective tax strategies designed to reduce your taxable estate value…
3. Trust Income Tax: Strategic Trust Planning
Trusts are a cornerstone of any sophisticated wealth plan because they provide legal protection for your assets, can help eliminate the probate process and can reduce your overall estate tax.
Trust income is also subject to an annual income tax. Surprise, surprise.
In 2026, trusts hit the top 37% tax bracket at just $16,000 of taxable income. To lower this burden, sophisticated high net worth tax strategies often utilize the following structures:
- Intentionally Defective Grantor Trust (IDGT): This trust is “defective” only for income tax purposes, meaning you pay the income taxes (instead of the trust) so the trust assets can grow 100% tax-free for your heirs. It’s a powerful way to “gift” the tax payments to your children without using your lifetime exemption.
- ING Trusts (DING/NING/WING): These are set up in states like Delaware or Nevada to help residents of high-tax states (like California or New York) avoid state income tax on investment gains. For founders, these are often used for Qualified Small Business Stock (QSBS) to “stack” exclusions, allowing each trust to claim its own $15 million tax-free gain limit independently of the owner.
Note: Certain states, like California, now tax ING trusts at the state level. Discuss with your estate planning attorney and tax advisor.
- Grantor Retained Annuity Trust (GRAT): You put an asset into this trust for a few years and get back your original investment plus interest. Any extra growth or “upside” goes to your children completely tax-free, making it perfect for high-growth stocks.
- Charitable Remainder Trust (CRT): You donate an asset to this trust, receive an immediate charitable tax deduction, and get an income stream for life. Although the income stream is subject to tax, when you pass away, whatever is left is not taxed and goes to your favorite charity.
Note: These trusts are extremely complex and often require direct consultation with a wealth advisor, attorney, and CPA to ensure they are drafted and administered correctly.
4. Gift Tax: Annual and Lifetime Gifting
Gifting remains a premier way to shift assets out of your estate, build generational wealth, and reduce your wealth taxes while you are still alive.
Just like any other financial activity, gifts – the transfer of money or property to another person while receiving nothing (or less than full value) in return- are subject to tax. DIfferent from income tax, however, gift tax is typically paid by the giver rather than the recipient.
In 2026, the annual gift exclusion is $19,000 per recipient. If you give more than the annual exclusion to any one person in a single year, you are generally required to file Form 709 (a gift tax return) to report the transfer to the IRS.
Taxable gifts that exceed this annual limit include things like –
- giving a child a $50,000 down payment for a home,
- transferring the title of a vehicle worth $25,000, or
- providing $30,000 in seed money for a friend’s business.
While these gifts must be reported, you typically won’t owe any actual taxes until your total lifetime gifts exceed the $15 million lifetime exclusion. Once you cross that historic $15 million threshold, any further gifts above the annual exclusion are subject to a flat 40% gift tax.
Example of the Gift Tax in Action: If you are married and have three children, you and your spouse can each give $19,000 in cash to each child. This means your family can move $114,000 ($38,000 x 3) out of your taxable estate in 2026 without filing a gift tax return or using a penny of your $15 million lifetime exemption.
Certain gifts are always excluded from the gift tax, regardless of the amount:
- Tuition paid directly to a qualifying educational institution.
- Medical expenses paid directly to a healthcare provider.
- Gifts to your spouse (if they are a U.S. citizen).
- Gifts to political organizations.
- Gifts to qualifying charities.
Important Limitation: To qualify for the $19,000 exclusion, the gift must be a “present interest,” meaning the recipient has the immediate right to use or enjoy the property. The exclusion typically does not apply to gifts of future interest, such as a gift that the recipient cannot access until a later date.
Because these rules are nuanced, it is best to discuss your gifting plans with an estate planning attorney and a tax advisor before proceeding to ensure they qualify for the exclusion.
5. Generation-Skipping Tax: Complex Estate Planning
The Generation-Skipping Transfer (GST) tax is a major hurdle for those building a multi-generational legacy. This is a flat 40% federal tax on assets passed to “skip persons”—such as grandchildren —designed to ensure that wealth is taxed at every generational level.
Per IRS rules, a “skip person” is any relative two or more generations below you (like a grandchild) or an unrelated person more than 37.5 years younger than you.
Without proper planning, a gift to a skip person can trigger a “triple tax” nightmare where the same dollar is hit by the gift tax, the estate tax, and the flat 40% GST tax. To avoid this, many wealthy individuals create two separate trusts:
- GST-Exempt Trust: This “bucket” is filled only with assets covered by your $15 million GST exclusion, allowing the money to grow and support grandchildren for decades tax-free.
- Non-Exempt Trust: This “bucket” holds assets that exceed your exclusion limit and is usually reserved for “non-skip persons” (like your children) to avoid triggering that extra 40% GST tax.
While the 2026 GST exemption matches the estate tax at $15 million, this area of law is extremely complex. Navigating “inclusion ratios” and “automatic allocations” requires direct consultation with an attorney, wealth advisor, and a qualified tax advisor to plan accordingly and avoid a surprise 40% tax bill.
Conclusion
Maintaining your financial position requires more than just high earnings; it requires the right high net worth tax strategies. By leveraging the permanent increases in exemptions and modern trust structures, you can ensure your wealth serves your family rather than the IRS.
Disclaimer: This material is for informational purposes only and is not intended as tax, legal, or accounting advice. Consult your own advisors before making significant financial commitments.
General Information Only: This content is prepared by The Little CPA for informational and educational purposes only. It does not constitute financial, tax, legal, or investment advice. While we strive for accuracy, the rapidly changing nature of tax laws—means this information may not apply to your specific situation.
No Professional-Client Relationship: Your use of this website or engagement with this content does not create a CPA-client relationship. You should consult with a qualified professional who is familiar with your individual financial circumstances before making any significant financial decisions.
Third-Party Risk: References to specific software, banks, or storage providers are not endorsements. We are not liable for any issues, data breaches, or financial losses that may arise from your engagement with third-party vendors.
Tax Substantiation Warning: Per 2026 IRS guidelines, donors are responsible for obtaining written acknowledgment from a charity for any single contribution of $250 or more before claiming a deduction. Tax benefits for charitable giving vary based on your filing status (Itemized vs. Standard Deduction) and your Adjusted Gross Income (AGI).
Past Performance: Any examples of tax savings or investment returns are for illustrative purposes only. Past performance does not guarantee future results.
