Tax strategies for ultra wealthy families often look very different from the tax tips most people read about. As wealth grows, so does complexity. Investment accounts, business interests, real estate, trusts, charitable goals, and multiple generations can all affect how much of your wealth you keep and how much you can pass on.
Good tax planning starts with understanding what you want your wealth to accomplish. This article outlines several high net worth tax planning strategies families may want to discuss with their advisor, tax professional, and attorney. Tax laws are complex and change often, so always check current IRS guidance before acting.
Why High Net Worth Tax Planning Is Different
For many families, tax planning means filing a return each spring. For families with significant wealth, it is a year round effort that touches many decisions.
More Moving Parts
Multiple income sources: Business income, investment income, and real estate can each be taxed differently.
Multiple account types: Taxable, tax-deferred, and tax-free accounts each have their own rules.
Multiple generations: Gifts, inheritances, and trusts raise questions about who pays tax and when.
Multiple advisors: Coordinating your investment, tax, and legal professionals matters.
Federal Focus for Tennessee Families
Tennessee does not have a broad state income tax, and the state repealed its inheritance tax. For many Tennessee families, federal income, capital gains, gift, and estate taxes are the main focus.
You can read our earlier article on tax strategies for ultra wealthy families for more background.
Investment Tax Strategies to Consider
How you hold and manage investments can shape your tax bill over time.
Asset Location
Asset location means deciding which investments to hold in which types of accounts. For example, investments that generate regular taxable income may be held in tax-deferred accounts, while investments expected to be held for long periods may fit in taxable accounts. The right mix depends on your situation.
Tax Loss Harvesting
Selling investments that have declined in value may create losses that can offset gains. There are rules to follow, including the wash sale rule, which limits buying back the same or a substantially identical investment within a short window.
Managing Capital Gains
Holding period: Long term gains are generally taxed at lower rates than short term gains.
Timing sales: Spreading gains over multiple years may help manage tax brackets.
Concentrated positions: Families with large holdings in a single stock may want a thoughtful plan for diversifying over time.
Roth Conversions
Converting part of a traditional IRA to a Roth IRA creates taxable income now, but qualified Roth withdrawals are generally free of federal income tax later. Some families consider conversions in lower income years.
Charitable Giving Strategies
For families who value philanthropy, legacy planning and charitable giving often go together. Several approaches may support both your giving goals and your tax planning.
Gifting appreciated securities: Donating investments that have grown in value may allow you to avoid capital gains on that growth while supporting a cause you care about.
Donor advised funds: A donor advised fund may let you make a contribution in one year and recommend grants over time.
Private foundations: Some families use a foundation to involve multiple generations in giving, with added administrative responsibilities.
Charitable remainder trusts: These trusts may provide an income stream with a remainder going to charity.
Qualified charitable distributions: Eligible IRA owners may give directly from an IRA to charity, which may help with required minimum distributions.
Each option has its own rules and tradeoffs, and the new federal tax law changed some charitable deduction rules, so it is important to review current guidance.
Gifting and Estate Tax Strategies
Many families want to support children and grandchildren during their lifetime as well as after.
Annual Exclusion Gifts
The IRS allows a certain amount to be given to each person each year without using any of your lifetime exemption. The amount is adjusted periodically, so check the current figure.
Lifetime Gifting
Some families make larger gifts during their lifetime so that future growth on those assets occurs outside of their estate. This can be weighed against the potential benefit of a basis step up for assets held until death.
Trusts in Estate Planning
Trusts can help families manage how and when assets pass to the next generation. Different types of trusts serve different goals, such as control, privacy, or tax planning. Your attorney can help determine which, if any, fit your family.
Business Interests
For business owners, the valuation and sale of business interests can be a major part of estate and tax planning. Thoughtful timing and coordination may matter.
Questions High Net Worth Families May Want to Ask
Are our accounts organized with taxes in mind? Consider whether asset location has been reviewed recently.
Do we have a plan for large unrealized gains? Think about concentrated positions and long held assets.
Is our charitable giving as effective as it could be? Review how and when you give.
Is our estate plan current? Documents drafted years ago may not reflect current law or wishes.
Are our advisors talking to each other? Coordination can help avoid surprises.
How ProffittGoodson Approaches Tax Aware Planning
At ProffittGoodson, our work begins with gaining a deep understanding of your financial life. We look at tax strategies, investment planning, and estate considerations together, and we often coordinate with tax and legal professionals.
Our approach is built around multidimensional service, disciplined investing, and clarifying counsel:
Understanding you first: Learning your family's goals and values.
Connecting money to meaning: Aligning your money decisions with your life goals.
Objective guidance: Recommendations guided by the objective of supporting your long-term goals, without the influence of hidden motivations.
Who We Serve in Knoxville and East Tennessee
ProffittGoodson Private Wealth works with private clients and nonprofits. We offer personalized financial planning in Knoxville and East Tennessee for multigenerational families, business owners, women managing wealth, retirees, foundations and endowments, and trusts and estates.
Learn more on our Who We Serve page or meet our team.
Start the Conversation
Tax planning for significant wealth works best when it is coordinated and ongoing. If you would like to talk through strategies that may fit your family, we invite you to contact ProffittGoodson. You can also join our Wealth Journal for monthly financial market perspectives and wealth management insights from our team.
Frequently Asked Questions
How do wealthy families reduce taxes legally?
Common approaches may include asset location, tax loss harvesting, charitable giving strategies, lifetime gifting, and trusts. The right mix depends on each family's situation and current tax law.
What is the difference between tax avoidance and tax evasion?
Tax avoidance means using legal strategies to manage taxes. Tax evasion is illegal. Working with qualified professionals helps keep planning within the rules.
What is asset location in tax planning?
Asset location is the practice of placing investments in the types of accounts where they may be taxed most efficiently, such as taxable, tax-deferred, or tax-free accounts.
Do high net worth families need a trust?
Not always. Trusts can help with control, privacy, and tax planning, but they also add cost and complexity. An attorney can help you decide.
Does Tennessee have an estate tax?
Tennessee repealed its inheritance tax and does not have a separate state estate tax. The federal estate tax may still apply to larger estates.
How often should high net worth families review their tax plan?
Many families review at least once a year and after major life events, business changes, or new tax laws.
ProffittGoodson Private Wealth provides this content for informational and educational purposes only. It is not intended as, and should not be relied on as, individualized investment, tax, or legal advice. Tax laws are complex and subject to change; please consult a qualified tax professional regarding your specific situation. All investing involves risk, including the possible loss of principal. No strategy can guarantee a profit or protect against loss. Past performance is not indicative of future results. Please refer to the firm's Form ADV and disclosures for additional important information.
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