According to a recent New York Times investigation, Donald Trump’s father, Fred Trump, gave the president millions to get him started in the real estate business and create the “Donald Trump myth.” And Fred did it without giving even more millions to the IRS for gift and estate taxes at the then-55% rate.

Inquiring minds want to know what the ultra-rich can still do under today’s tax law to transfer wealth to loved ones without getting hosed by gift and estate taxes at the now-40% rate. I will explain some ways after first covering the necessary background information. Here goes.

Federal gift and estate tax basics

Thanks to the aforementioned Donald Trump, we currently have the most taxpayer-friendly federal gift and estate tax rules in memory. For 2018, you can give away up to $11.18 million to loved ones via gifts while alive and/or bequests after death without any federal gift or estate tax hit. If you’re married, you and your spouse can effectively give away up $22.36 million. These unified gift and estate exemption amounts will be adjusted for inflation in 2019-2025. Combined gifts and bequests that exceed these exemption amounts are taxed at a flat 40% rate.

But after 2025, the pre-Trump unified gift and estate tax exemptions are scheduled to come back into effect. If that happens, the exemptions in 2026 will be in the neighborhood of $6 million for unmarried folks and $12 million for married couples.

Strategies to avoid gift and estate taxes if you’re just well-off

If you’re just very well-off as opposed to being filthy rich, today’s generous gift and estate tax exemptions are probably all you need to satisfy your wealth transfer desires without a big tax hit.

You can also give away up to $15,000 each year to a specific gift recipient without using up any of your gift and estate tax exemption. If you’re married, you and your spouse can make joint gifts of up to $30,000 to a specific recipient without using up any of your exemption.

Finally, you can give unlimited amounts to cover college tuition or medical expenses of gift recipients without using up any of your gift and estate tax exemption, as long as you make direct payments to the medical providers or education institutions. So if you want to cover your granddaughter’s $55,000 annual tuition (and rising) to attend Duke University for the next four or five years, no problem. Just do it!

Strategies for the truly rich

For folks in this category, the first principle is to give away appreciating assets — like real estate and stocks — before they appreciate. That way, there will never be any gift or estate tax on the appreciation. It all goes to your heirs tax-free.

Make generation-skipping gifts

Another good idea is to transfer wealth to grandchildren and great grandchildren. That way, their parents (your children or grandchildren) will not have to figure out ways to re-gift that wealth without themselves getting hit with gift and estate taxes.

Unfortunately, our beloved Congress was wise to this strategy and created the dreaded generation skipping transfer tax (GSTT) to deal with it.

To understand how the GSTT works, and how to take advantage of the GSTT exemption to avoid or minimize it, see this previous Tax Guy column. When reading that story, replace $5.49 million (the 2017 GSTT exemption) with $11.18 million (the GSTT exemption for 2018).

The best strategy to avoid or minimize the GSTT is to use trusts to transfer appreciating assets to grandchildren and great grandchildren before the assets appreciate any further.

Transferring appreciating assets before further appreciation occurs is a recurring theme for rich folks.

Establish a Grantor Retained Annuity Trust (GRAT)

Rich folks can also establish Grantor Retained Annuity Trusts (GRATs), which is reportedly one of the things Fred Trump did to benefit The Donald without Fred getting hosed with gift or estate taxes.

With the GRAT strategy, you create an irrevocable trust that exists for a certain period of time, commonly two to five years. The trust then pays you an annuity equal to an IRS-specified interest rate multiplied by the value of the gift at the time you set up the trust. When the trust expires, the beneficiary of the trust (the object of your generosity) receives the remaining trust assets free of any gift or estate tax.

This arrangement effectively allows you to discount for gift tax purposes the value of the assets used to fund the trust, because the annuity payments you receive are subtracted from that value. If the value of the gifted assets at the time you set up the trust is modest, the annuity payments can zero it out or nearly so. Then you owe little or no gift tax upon establishing the GRAT. And if the trust’s assets appreciate hugely, the appreciation will far exceed the annuity payments--with the difference going to the trust beneficiary after the trust expires.

As you might imagine, GRATs are especially popular with rich folks who own shares in start-up companies that are expected to go public. The shares go into the trust, and the appreciation when the company does the expected IPO far exceeds the annuity payments. The result: you’re able to transfer significant wealth with little or no gift tax hit. Nice!

However, the GRAT strategy becomes less attractive when interest rates go up, because the annuity paid to you must track the rising IRS-approved interest rate. Higher annuity payments mean less remaining for the trust beneficiary when the trust expires. The current IRS-approved interest rate for calculating GRAT annuity payments is 3.4%. That’s still a low rate by historical standards, but it was just 1.4% in August of 2016. So if you are a good candidate for the GRAT strategy, it might be a good idea to get your deal done before rates go any higher.

The last word

There you have it: your complete guide to being filthy rich and transferring untold wealth to your heirs without owing any taxes. Just kidding. But you get the idea. Obviously, wealth transfer strategies for the truly rich are not good DIY projects. Hiring a super-competent estate planning expert is always worth the money for all you .01 percenters out there. BTW: I’m available for adoption.