• The richest of the rich can use life insurance to avoid estate and income taxes.
• Private-placement life insurance is perfectly legal — unless a new bill passes.
• A financial advisor tells Insider how the insurance saves the wealthy tens of millions of dollars.

Life insurance is probably the least sexy area of financial planning. But for the richest of the rich, policies can slash tens of millions of dollars off their tax bills.

Private-placement life insurance is a little-known tax-avoidance tactic. When structured correctly, PPLI policies can be used to pass on assets from stocks to yachts to heirs without incurring an estate tax.

"In the US, people sell life insurance as a middle-class way of structuring assets," Michael Malloy, a wealth advisor who has specialized in PPLI for 20 years, told Business Insider in 2022. "But PPLI is a completely different animal."

The PPLI industry enables a few thousand ultra-rich American taxpayers to shelter at least $40 billion, according to an investigation by the Senate Finance Committee. The report estimated that the average PPLI policyholder is worth well over $100 million.

PPLI is legal—for now. On December 16, Oregon Sen. Ron Wyden released a draft bill to close the loophole. Under the Protecting Proper Life Insurance from Abuse Act, PPLI policies would be treated as investment funds, not life insurance or annuity policies, which would eliminate the tax benefits.

"Life insurance is an essential source of financial security for tens of millions of middle-class families in America, so we cannot have a bunch of ultra-rich tax dodgers abusing its special tax treatment to set up tax-free hedge funds and shelter oodles of cash," Wyden said in a written statement.

While tax savings are the primary draw of PPLI for US clients, those in the Middle East or Latin America are often looking to use trusts to conceal information about specific assets from corrupt governments, Malloy said.

"Clients don't want an organized crime ring bribing an underpaid tax official to get information on their family," he said.

US taxpayers are required to report to the IRS only the cash value of a foreign life-insurance policy, not the assets within the trust.

These offshore life insurers in jurisdictions such as the Cayman Islands and Bermuda typically require at least $5 million as the upfront premium. Malloy advises that clients have at least $10 million in assets to make PPLI worthwhile. His clients usually hold at least $50 million in assets.

Here is how PPLI works

In short, an attorney sets up a trust for a wealthy client. The trust owns the life-insurance policy that's created offshore.

The PPLI policy premiums are funded with assets. The assets must be diversified — typically with at least five different asset classes — and can include stocks and business interests, as well as tangible assets like yachts and real estate.

Depending on the client's age, nationality, and other factors, the death benefit can, in theory, max out at $100 million, Malloy said.

If structured correctly, the benefit and the assets in the policy are passed to the children without incurring an estate tax. A 40% federal estate tax applies to estate values topping $13.61 million for individuals and $27.22 million for married couples.

Unlike with policies from US insurers, clients can cancel their policies without paying a massive surrender fee. The assets also grow within the trust tax-free. The cash value of the PPLI policy assets is held in a separate account, and this cash can be disbursed to the policy holder or invested. Investing in hedge funds is a popular use of PPLI assets.

But there's a catch. Policyholders have limited control over investment decisions. They cannot give directives to the asset manager to buy a certain number of shares in Apple, for instance.

It also requires a small army of professionals, including trust and estate attorneys, asset managers, custodians, and tax advisors. Since PPLI is relevant only to the ultrawealthy, few in wealth management or law are familiar with it.

"There's no questions on the CPA exam or the bar exam about PPLI, and asset managers are kind of skeptical," he said. "They think you're going to take assets away. Actually, the assets become stickier and get more alpha because the client pays less tax."

How the proposed bill would endanger PPLI

Under Wyden's proposed legislation, most PPLI policies would be classified as "private placement contracts" (PPCs) rather than life insurance policies. As such, any accumulated earnings and death benefits would be taxed.

The bill would apply to future and existing PPLI policies, giving policyholders 180 days to liquify the assets or transfer them. Insurers who dare to issue or reinsure the policies will no longer have the benefit of secrecy. To better enable the IRS to enforce the bill, insurers will have to report all PPCs or face a $1 million fine for each 30-day period that they fail to do so.

The bill faces steep odds of passing with Donald Trump's reelection and a Republican House and Senate. The insurance industry is counting on it.

"This legislation is an attack on all forms of permanent life insurance and, by extension, an attack on holistic financial planning," said Marc Cadin, CEO of trade group Finseca, in a statement. "We look forward to working with the new Congress and the Trump administration to advance policies to move our country forward rather than raising taxes on life insurance."

Virginia Gov. Glenn Youngkin, a Republican, is pushing to eliminate taxes on tips ahead of the commonwealth's next legislative session.

This proposal would return an estimated $70 million annually to the pockets of Virginia workers, Youngkin's office said Monday in a press release.

An end to taxes on tips could help more than 250,000 people in Virginia who work within the food service industry, the personal service industry such as hairstylists, the hospitality industry and others who receive tips through their employment in other industries.

"We have delivered over $5 billion in tax relief to date, and we remain committed to lowering the cost of living for hardworking Virginians. It’s their money, not the government’s," Youngkin said in the release.

YOUNGKIN TO DRAFT SANCTUARY CITY BAN, MAKING STATE FUNDING ON ICE COOPERATION

"By removing tips from taxable income, it will directly increase the take-home pay of hundreds of thousands of Virginians and give them more buying power, which in turn will improve financial stability, stimulate local economies, and honor the value of their hard work," he continued.

Virginia workers who earn tips would be able to claim a deduction on their state tax return if the income is included in their federal adjusted gross income, the release said.

"This is way to keep more money in their pocket as opposed to giving it to a government. We’re already running surpluses and therefore, no taxes on tips is going to become the manta in Virginia," Youngkin said Monday during an appearance on Fox News' "America's Newsroom."

The governor's proposal echoes President-elect Trump’s call during his campaign to end taxes on tips. Vice President Harris also expressed support for eliminating taxes on tips during her presidential campaign.

GLENN YOUNGKIN 'PERSONALLY INVITES' NEW TRUMP ADMIN TO SETTLE IN VIRGINIA OVER MARYLAND AND DC

The proposal comes ahead of the start of Virginia's legislative session next month. It would require approval from the commonwealth's General Assembly, and it is unclear if Democrats, who control both chambers, would support Youngkin's proposal.

Next year, Virginia's gubernatorial race will be held, where Lt. Gov. Winsome Earle-Sears, a Republican, is expected to face off against U.S. Rep. Abigail Spanberger, a Democrat.

Several economic experts panned New York Gov. Kathy Hochul’s "inflation refunds" she plans to distribute to qualifying New Yorkers as part of her 2025 State of the State initiative.

Last week, Hochul proposed $3 billion in direct payments to about half of the Empire State’s 19 million residents: $300 for single taxpayers making up to $150,000 per year and $500 for joint filers making twice that.

"Because of inflation, New York has generated unprecedented revenues through the sales tax — now, we're returning that cash back to middle class families," Hochul said in a statement announcing the proposal.

However, some economists and economic experts, like Andy Puzder, said the move simply "redistributes [money] to people so the people will vote for them."

REPUBLICANS RIP HOCHUL'S INFLATION REFUNDS AS ‘BRIBE TO MAKE’ NY'ERS ‘LIKE HER’

"If you really wanted to help everybody, and if you have an excess of sales taxes, then you reduce the sales tax," added Puzder, the former CEO of the parent company of Hardee’s and Carl’s Jr., CKE Restaurants. "It’s not difficult math," he added.

Puzder is a lecturer on economics and a senior public policy fellow at Pepperdine University who was considered for Labor secretary in the first Trump administration.

In his work at CKE Restaurants, Puzder increased the average franchise sales volume for the then-struggling Hardee’s from $715,000 in 2001 to more than $1 million a decade later.

The U.S. economy has been in trouble because of the same types of policies forwarded by Hochul and other tax-and-spend Democrats, he said – adding that President Biden’s American Rescue Plan was what lit the fuse on nationwide inflation in the first place.

"If you reduce taxes, fewer people will also be leaving the state," he added, as New York shed another population-based House seat and electoral vote in the decennial census.

Puzder noted a few top Democrats have warned their own leaders against such "refunds" from the government, citing former President Bill Clinton’s Treasury chief Lawrence Summers cautioning the Biden administration that similar handouts in 2021 would drive up inflation.

HOCHUL SPARKS BIPARTISAN OUTRAGE OVER CONGESTION PRICING REBOOT AS DEMS WORRIED TRUMP WOULD BLOCK IT

Former Rep. Dave Brat, R-Va., an economist and currently vice provost of Liberty University in Lynchburg, cited Nobel laureate Milton Friedman’s assertion that inflation is a monetary phenomenon.

Therefore, he said, in Hochul’s case, the better fix for inflation lies not in Albany, but in Manhattan.

"Inflation has to do with how much money the Federal Reserve prints. If she wants to give people money back from the government, that’s fine – but she’s in a prominent position in New York in that the Fed has one of its chief desks there and if you want to solve inflation, you go to the Federal Reserve."

He added that $500 for a family is a "trivial, symbolic move against a massive, hidden tax," noting that with an estimated 22% real-inflation rate over the past four years, $500 in 2020 purchasing power is only worth $390.

Brat added that Democrats’ penchant for such "refunds" put Republicans at a consistent political disadvantage because the GOP essentially has to "compete against Santa Claus" handing out presents versus the right warning the public to "eat their spinach."

Economist EJ Antoni echoed some of the sentiment about the refunds being inflationary themselves, saying that what got the U.S. into inflation in the first place was too much government spending.

"So this idea that we're going to add on another government expenditure, you're essentially just creating a feedback loop," Antoni said.

"Now, that's not to say that New York State alone is going to cause inflation. Inflation comes from the federal government, because the federal government is the one that can't create money, can print money out of nothing. But at the same time, you're still talking about increasing the cost of living for New Yorkers, just in a different way," he said.

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"Any additional government spending is going to have to be paid for one way or another."

Antoni added he could see such payments to the public "snowballing" into more and more payments down the line, which in turn would lead to higher taxes being needed to fund the handouts.

Antoni also said Hochul’s proposal differs from then-President Donald Trump’s COVID-era checks, because the latter came during a time people needed "money to survive" amid stay-at-home orders and various shutdowns of job sectors.

"If the issue is that we need to reduce people's cost of living, the best way to do that would just be to reduce their taxes, not have another payment by the government," he said.

Fox News Digital also reached out to the left-leaning Brookings Institution for a further diverse viewpoint on Hochul’s move.

Fox News Digital also reached out to Hochul's office for comment but did not receive a response by press time. 

• The IRS has gradually rolled out a program to allow Americans to directly file taxes with the IRS.
• It's designed to make filing taxes simpler and easier.
• A group of Republicans want Trump to end it, saying it's government overreach.

More than two dozen House Republicans are asking President-elect Donald Trump to terminate the Internal Revenue Service's (IRS) free direct tax filing system as soon as day one of his presidency.

Republican Reps. Adrian Smith of Nebraska and Chuck Edwards of North Carolina sent a letter to the president-elect on Tuesday urging him to end the program via executive order, saying that the program poses a "threat to taxpayers' freedom from government overreach."

The letter was signed by 27 other Republicans and is also addressed to Elon Musk and Vivek Ramaswamy, the co-leads of DOGE.

The program came about as the result of the Inflation Reduction Act, which included $15 million in funding to study the creation of a website allowing Americans to directly file their taxes to the IRS for free. That led to the rollout of a pilot program that was available in 12 states last year, and is set to expand to 24 states in 2025.

A spokesperson for the IRS did not immediately respond to a request for comment.

Many Americans rely on tax-prep companies like TurboTax and H&R Block to do their taxes each year. The new program is designed to compete with those programs and make filing easier and less costly for Americans.

Smith and Edwards argued in their letter that the program represents a conflict of interest for the IRS — that the agency should not be in charge of both assessing taxes and enforcing tax crimes. The duo wrote that the agency "has little incentive to ensure hardworking Americans do not pay more than they owe in taxes."

They also cast the free direct-file program as an example of the "weaponization of government against Americans," a long-standing focus of Trump and MAGA-aligned right.

It is unclear whether Trump will take the lawmakers up on their request, and the Trump-Vance transition did not immediately respond to Business Insider's request for comment.

Republicans have broadly sought to roll back the $80 billion in additional funding for the IRS that was included in the Inflation Reduction Act, saying it will be used to enable the agency to target conservatives and ordinary taxpayers.

New York Democratic Gov. Kathy Hochul announced the first initiative of her 2025 State of the State plan: up to $500 in "inflation refunds" for New Yorkers dealing with spiking costs-of-living in the Empire State.

The proposal would take $3 billion in "excess" sales tax revenue that had been "driven by inflation" and return the money to nearly half of the state's population.

Families making less than $300,000 would be eligible for $500, and individual taxpayers making less than $150,000 would receive $300 under the plan. The governor's office said the announcement is one of several proposals aimed at lessening the burden on New Yorkers' cost-of-living.

"Because of inflation, New York has generated unprecedented revenues through the sales tax — now, we're returning that cash back to middle class families," Hochul said in a statement Monday.

HOCHUL SPARKS BIPARTISAN OUTRAGE OVER CONGESTION PRICING REBOOT AS DEMS WORRIED TRUMP WOULD BLOCK IT

"My agenda for the coming year will be laser-focused on putting money back in your pockets, and that starts with proposing Inflation Refund checks of up to $500 to help millions of hard-working New Yorkers.

"It's simple: the cost of living is still too damn high, and New Yorkers deserve a break," said Hochul, offering a sentiment similar to that repeated by perennial candidate and Rent is Too Damn High Party founder Jimmy McMillan.

However, New York Republicans were not as receptive to Hochul's plan, as NYSGOP Executive Director David Laska told Fox News Digital the governor appeared simply out to make friends rather than bring about long-term relief.

"With her approval rating deep underwater, Kathy Hochul is resorting to bribing New Yorkers to like her," Laska said. 

HOMAN SCOFFS AT HOCHUL'S SUDDEN OUTRAGE OVER VIOLENT MIGRANTS

"Handing out one-time checks won’t stop the crushing inflation Democrats’ policies have fueled – it will only add to it. New York needs real, permanent solutions: relief from our highest-in-the-nation tax burden and a rollback of job-killing regulations."

New York City Council Minority Leader Joe Borelli claimed that the $300 offered to middle- and low-income residents would still be less than what is spent on each migrant daily.

"[That] is not that backslapping win the governor thinks it is," said Borelli, R-Staten Island. 

Borelli added that the plan "looks increasingly silly" in the face of Hochul's successful push for congestion pricing and her borrowing "costly energy cues from the Greta Thunberg School of Energy Policy."

"Newsflash for Kathy Hochul," added Rep. Michael Lawler, R-N.Y., "Taking thousands of dollars out of New Yorkers’ left pocket and then putting $500 in their right pocket isn’t a tax cut, it’s an insult."

State Sen. Rob Ortt, R-Niagara Falls, said that Democrats like Hochul continue to make New York State more expensive despite pleas for relief.

"The governor's mindset is promising, however words are words," said Ortt, the top Republican in the chamber.

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Ortt claimed that it is his caucus that is the true voice for hardworking New Yorkers seeking "real affordability… not just one-shot gimmicks."

Meanwhile, Rep. Nicole Malliotakis, R-N.Y., said Albany needs to "stop treating New Yorkers like bottomless ATM machines" with their new tolls and tax hikes.

Malliotakis' constituents now face an extra $9 "congestion" toll to enter Lower Manhattan, on top of an approximate $20 round-trip cost to commute on the state-owned Verrazzano Bridge.

"If she’d allow her constituents to keep more of their hard-earned money from the start, there would be no need for these ‘inflation refund’ checks to begin with."

Hochul's office estimated 8.6 million out of 19.5 million New Yorkers would benefit from the planned "refunds."

Fox News Digital reached out to Hochul for further comment on the criticisms.

President-elect Trump announced plans to impose a 25% across-the-board tariff on all imports from Canada and Mexico, effective his first day in office. But the move is largely "a diplomatic" one that draws on Trump's "war chest" to leverage U.S. interests, according to one expert.

Tariffs are taxes that governments place on goods being imported or exported. They can raise the cost of imported products, making local products more attractive to buy.

"President Trump has used tariffs effectively before, and I think we can expect him to continue using them in a targeted manner, even in areas that are not directly related to trade," Andrew Hale, Heritage Foundation's senior policy analyst, told Fox News Digital. 

TRUMP'S PROPOSED TARIFFS ON MEXICO, CANADA, CHINA WILL INCREASE INFLATION, GOLDMAN SACHS WARNS

Hale noted that Trump's previous use of tariffs was aimed not just at trade imbalances but also at issues like border security and drug trafficking. According to Hale, Trump has consistently applied these tariffs in areas that extend beyond trade imbalances, using them as tools of diplomacy to further "America First" policies.

"Trump continues to assert American strength on the world stage, something the Biden administration has been reluctant to do, and both allies and adversaries have taken notice of this, what I would call a resurgence of U.S. leadership with Trump's return," he said.

Hale suggested that if Trump's tariff proposals were implemented, Mexico and Canada might challenge them under the USMCA, but he doubts it would reach that stage, as such measures have previously proven effective in achieving U.S. goals. Hale also speculates that Trump could use tariffs as leverage in other contexts, such as targeting countries that act against U.S. allies like Israel.

"I don't see it going that far, because it's effectively worked," he said.

TRUMP SUGGESTS CANADA BECOME 51ST STATE AFTER TRUDEAU SAID TARIFF WOULD KILL ECONOMY: SOURCES 

During his first term, Trump renegotiated the North American Free Trade Agreement (NAFTA), replacing it with the United States-Mexico-Canada Agreement (USMCA), which went into effect July 2020. The USMCA aimed to modernize and address issues in the original NAFTA, particularly concerning labor rights, environmental standards and digital trade.

"I'm going to inform her [Mexican President Claudia Sheinbaum] on day one, or sooner, that if they don't stop this onslaught of criminals and drugs coming into our country, I'm going to immediately impose a 25% tariff on everything they send in to the United States of America," Trump said during his last North Carolina campaign stop before the election.

Hale added that Trump's success in using tariffs during the USMCA renegotiation with Canada and Mexico demonstrates their power as a diplomatic tool, as Trump has criticized the nations over trade imbalances and issues like drug trafficking as justifications for the tariffs.

TRUMP TARIFFS WILL BRING MEXICO TO THE TABLE, TEXAS DEMOCRAT SAYS

"The Biden administration has not been implementing USMCA as they should, as Mexico has been violating it," Hale said.

While the tariffs aim to boost U.S. manufacturing, experts and some politicians warn they could disrupt supply chains, increase costs for businesses reliant on foreign goods, and potentially lead to retaliatory tariffs from trading partners, impacting American exporters. 

On Thursday, liberal Gov. Gavin Newsom of California took aim at Trump's proposal, calling it "one of the biggest tax increases in U.S. history."

"You are being betrayed by these policies," Newsom said.

According to the Tax Foundation, the Trump administration imposed some "$80 billion worth of new taxes on Americans" in 2018 and 2019 when he slapped tariffs on $380 billion worth of products.

The Biden administration largely kept these tariffs in place and then enforced additional tax increases on $18 billion worth of Chinese goods.

Former Vice President Mike Pence came out in support of Trump's tariffs, but urged a delicate approach to balance the country's relationship with Beijing.

"I fervently hope his proposed tariffs will bring China back to the negotiating table as it did during our administration. I know this will be difficult and create challenges in the short-term, but it will be well worth it in the long-term," Pence said this week. "We want better for America and China – and I believe a firm, but fair approach is the best way to get there." 

Trump also recently suggested to Canadian Prime Minister Justin Trudeau that if a tariff for failing to address trade and immigration issues would kill the neighbor to the north’s economy, maybe it should become the 51st state, sources told Fox News.

Sources say Trump became more animated when it came to the U.S. trade deficit with Canada, which he estimated to be more than $100 billion.

Fox News Digital's Caitlin McFall, Greg Wehner and Bret Baier contributed to this report. 

California’s unemployment insurance (UI) financing system is facing big deficits, requiring a full "redesign," according to a new report from the state’s nonpartisan Legislative Analyst’s Office (LAO).

The system, meant to be self-sufficient, has fallen short of covering annual benefit costs, resulting in a projected $2 billion annual deficit over the next five years and an outstanding $20 billion federal loan balance.

"This outlook is unprecedented: although the state has, in the past, failed to build robust reserves during periods of economic growth, it has never before run persistent deficits during one of these periods," the LAO report, titled "Fixing Unemployment Insurance" and published Tuesday, stated. 

NEWSOM PROPOSES $25M FROM STATE LEGISLATURE TO ‘TRUMP PROOF’ CALIFORNIA

Independent analysts project that annual shortfalls will increase California's federal loan, costing taxpayers around $1 billion in interest each year. The system, which is funded by employer payments to the UI Trust Fund, hasn’t been updated since 1984 and "cannot keep up with inflation or provide the intended wage replacement of half of workers’ wages," according to the report.

The current employer tax structure discourages eligible unemployed workers from claiming benefits, while the state’s low taxable wage base hampers hiring of lower-wage workers, analysts found.

One suggestion researchers wrote to fix the gap is to increase the amount of wages taxed for unemployment benefits, raising it from $7,000 per worker to $46,800. Supporters of this change say it would bring in more money to fund the program. The report also recommends reworking how businesses are taxed for unemployment benefits to make the system simpler and encourage more hiring.

PROPOSITION 36 OVERWHELMINGLY PASSES IN CALIFORNIA, REVERSING SOME SOROS-BACKED SOFT-ON-CRIME POLICIES

To deal with the massive federal loan, the report suggests splitting the cost between employers and the state government, so that businesses aren’t stuck with all the debt.

"These are significant problems in isolation, let alone in combination," analysts wrote. "The significant changes proposed in this report are an honest reflection of these problems. However, whether or not the Legislature takes action, employers will soon pay more in UI taxes than they do today due to escalating charges under federal law."

Gareth Lacy, a spokesperson for the California Employment Development Department, which administers the state’s unemployment insurance program, called it "a thoughtful report" and noted officials "are reviewing it carefully."

"We agree the issue stretches back for decades and the pandemic compounded it," Lacy told Fox News Digital in a statement.

During the COVID-19 pandemic, the state's UI system was hit hard with an overwhelming number of unemployment claims, resulting in the state borrowing roughly $20 billion from the federal government to cover insurance benefits, which the state still owes. 

"Not only will the state’s tax system fall short of repaying that loan, the balance is set to grow due to the ongoing gap between contributions and benefits," the report noted. "This will become a near-permanent feature of the state’s UI program and a major ongoing cost for state taxpayers."

• Jose Palafox used a DST 1031 exchange to defer taxes on his Portland rental sale.
• The strategy allows reinvestment into a trust, so Palafox no longer has to manage a property.
• It wasn't the simplest strategy to execute and involved a lot of paperwork and moving parts.

In the summer of 2024, Jose Palafox took advantage of a little-known tax strategy called a DST 1031 exchange, which allows investors to avoid capital gains tax on the sale of a rental property.

Palafox was ready to sell his Portland rental, which had become more of a headache than a cash cow.

"My HOA fees had increased, my taxes had increased, and rents in Portland had gone down, so I wasn't making much if anything," the San Francisco-based millennial told Business Insider. "And I hadn't ever wanted to be a landlord."

He found himself a landlord when he got a job offer in the Bay Area while living in Portland. Rather than selling his primary residence at the time, he converted it to a rental, heeding common advice to hold onto real estate: "Everyone told me, 'Buy a house and don't sell it.'"

Executing a DST 1031 exchange, in which you sell a property and reinvest the proceeds into a Delaware Statutory Trust (DST), not only allowed him to defer capital gains tax — it also released him from landlord responsibilities. He essentially exchanged his Portland condo for a DST, which holds commercial real estate assets, and now owns fractions of high-grade institutional properties. He receives a $550 dividend payment each month, which BI verified by looking at a deposit made into his checking account from the DST.

Palafox says he's bringing in more from the DST than he was when he was renting his condo, and the investment is completely passive.

It was the right move for him and his financial situation — he didn't need to touch the proceeds from the property sale and could afford to reinvest it — and he avoided a tax consequence while gaining exposure to real estate assets he could never have afforded as an individual investor.

Of course, the process, which Palafox completed in the summer of 2024 according to an exchange statement viewed by BI, didn't come without its barriers to entry. Here are the challenges he faced before and during the exchange.

1. You have to be an accredited investor. To do a DST 1031 exchange, you have to be what's called an accredited investor. There are a few ways to qualify: having a net worth over $1 million, not including the value of your primary residence; having an annual income of $200,000 as an individual or $300,000 if you're married and filing jointly (this is how Palafox qualified); or having certain professional certifications, such as the Series 7, Series 65, or Series 82 licenses.

Unless you're an accredited investor, it can be difficult to even find information about various DST sponsors, noted Palfox, who hired a financial advisor to walk him through his options: "You have to be a qualified investor in order to even see the list of available DSTs."

2. Prepare to deal with a lot of paperwork and multiple parties. In Palafox's experience, there was a lot of paperwork — he said he signed about 10 documents via Docusign from start to finish — and there were a lot of moving parts. In addition to his advisor, he worked with a real-estate agent to list and sell his rental, two separate title companies (one for the property sale and another for the DST), and the DST sponsor.

He also had to find a qualified intermediary (QI). This is a neutral third party that holds the home sale proceeds until the investor buys their replacement property.

3. It can be an emotional roller coaster, especially when your money is with the QI. The most unsettling part of the process for Palafox was immediately after he sold his rental.

"For a period of time it felt like I had no idea where my money was from the sale," he said. On paper, his six-figure sale proceeds were in an escrow account, "but beyond a piece of paper I docusigned and the general say-so of people I'd never met on email I didn't really know how I would get my money back if I had to. My wife accused me of getting into a Ponzi scheme for a while."

He still has some anxiety about his investment because it's so different from anything else he owns. The only "proof" he has that he owns anything is an email from his DST sponsor congratulating him for his purchase, "which is still kind of terrifying," he said.

4. It could complicate your tax situation. "One thing I am not looking forward to is paying taxes," said Palafox. "Depending on the product you could be paying taxes in multiple additional states. I will use an accountant but I expect some increased costs and complications to file come tax time."

Even once you've gotten past the major barriers to entry to doing a DST 1031 exchange, "it's still a lot more challenging and in some ways less satisfying than clicking a button on your favorite trading app and buying stocks or crypto," he added. "There's no ticker to watch, these are boring investments that produce boring returns."

Still, he'd deal with the paperwork and stress all over again if he could go back, particularly because of the "UPREIT" option. Palafox said that what really sold him on this strategy was another tax code "loophole," of sorts, known as the 721 exchange, or UPREIT.

Eventually, a DST will end (most have a predetermined lifespan of five to 10 years), at which point his options are "to either 1031 into another DST or, ideally, be bought by a REIT fund that wants to own and operate these buildings longer term," he said. "Using a 721 exchange, I can roll into the REIT fund, again deferring taxes. At the end of this process, I would own shares in a private or public REIT, which I could fractionally liquidate. So, if I want to sell half of my investment, I could."

In short, at the end of his DST, he could get into a REIT without causing a taxable event.

"When I finally understood the flow from my investment into a REIT fund, the light really went off for me," he said. "I remember saying, 'Wow, this is the future,' and now I'm a bit of a fan, I guess."

• Some parents fear their kids will waste money, sink into debt, and never move out.
• Teaching personal finance lessons to young children can set them up for success, Mark Berg says.
• The financial planner tells parents to foster independence in their kids even if it's uncomfortable.

Many parents worry their children will grow up to be bad with money, wind up in debt, and end up moving back home.

Mark Berg, who founded Timothy Financial Counsel in 2000, says there are steps parents can take to avoid that fate.

Here are five of Berg's top tips for setting kids up for financial success which he outlined on a recent episode of Morningstar's "The Long View" podcast.

1. Start with the basics

Parents can start teaching their children about personal finance when they're as young as six or seven, Berg said. They can explain how money works, give their kids an allowance and pocket change for doing chores and odd jobs, then encourage them to save up for a special purchase as a lesson in the rewards of working and delayed gratification, he said.

Limiting spending money also teaches kids about opportunity cost, reinforcing the idea that money is scarce and there are constraints on what they can afford.

Berg said that using physical currency helps kids grasp the concept of money. It's visual, and they can hold it in their hands and hand it over, the veteran financial planner said.

"It really helps them understand the true cost and trade-off" with money, he said, "whether it's buying ice cream or going to the store to buy a toy."

"It's also healthy to say no," Berg added. Families should "not just always give, even if you have the means to do it, because that's not reality."

2. Build good money habits

Once their child receives their first paycheck, parents can explain how much has gone toward paying taxes, and help them budget the rest between buying things they want and saving for college and retirement.

Berg advised opening a checking account for children early on, then getting a credit card as soon as possible to establish a credit history. That can give them earlier access to the bank funding they'll likely need for a big purchase like a first home.

He emphasized that kids should pay off their credit cards as they use them to avoid carrying a balance and paying interest or late fees.

3. No coddling

Parents should aim to turn their grown children into self-reliant adults without delay, Berg said.

"They need to be independent of their parents' lifestyle and creature comforts, and need to work through those hard decisions from an early age of the trade-offs of spending versus saving," he said.

Berg advised parents to stop paying for things like their kids' cell plans and car insurance as soon as possible. He recalled a client whose kids moved back home after college, and they only offered them six months of rent-free living before charging $400 a month for the next six months, then double that for the next six months, and so on. Parents can even give all the rent payments back as a lump sum when their child moves out, he added.

The veteran financial planner suggested parents be up front with their kids about how much they can contribute to their college funds. That can help guide their decisions about what schools they apply to and what financial aid they seek.

Similarly, if parents are paying for a wedding, they should set a clear budget even if it forces their child to compromise between the perfect dress and the ideal venue, Berg said. If they loan the money to their kid to buy a house, they need to be strict in getting repaid, he added.

Letting your teenagers work can help foster independence and good saving habits, teach them to manage their time better and be more efficient with their schoolwork, strengthen their character, and better appreciate their lifestyle as they're partly paying for it, Berg said.

He made an exception to his tough-love approach when it comes to family holidays and similar occasions. "I really think that family time, especially with aging parents and even grandparents, if they're still living, is really a great investment in the family dynamics — I think there's a lot of health to that."

4. Do no harm

Berg underscored that parents should never put their children in a tough financial position.

"I'd say the No. 1 principle is don't create a circumstance where your help creates a hurt," he said.

Berg gave the example of buying a home for a child who can't afford the maintenance and property taxes, and said those kinds of purchases "really lose the joy."

5. Pass wealth down early and carefully

"Start in the shallow end and work toward the deep end with your kids," Berg said, encouraging parents to give small amounts to their children over time instead of a lump sum after they die.

Parents could match the money their child makes from a summer job and put that amount in a savings account for them, he said. They could give money each year but earmark it for education or retirement to avoid lifestyle bloat or removing the incentive to work. They might even give a larger one-off amount as a test.

"It really gives you a snapshot, a small example of what their decision thinking will be like when they eventually potentially receive that much, much larger number of an inheritance down the road," Berg said.

"And it gives an opportunity not for the parent to micromanage, but the parent to observe the decisions that they make, be available to have conversations, really help guide and be there on the journey, on the path to help them make good financial decisions."

Thanks to tax cuts made during the first Trump administration, Americans can give or hand down about $13 million in assets without paying federal estate tax. Only 0.2% of taxpayers have to worry about this tax, and they hire top-notch accountants and lawyers to pay as little as possible.

"This is a wealthy person's playground problem," Robert Strauss, partner at the law firm Weinstock Manion, told Business Insider.

Some of these tax avoidance techniques might be eyebrow-raising, yet they are perfectly legal. For instance, taxpayers can put homes and country homes in trusts that last decades and any appreciation in the property's value doesn't count toward their taxable estate. Life insurance, probably the least sexy area of financial planning, can be used to save tens of millions of dollars in taxes if bought from issuers in the Cayman Islands and Bermuda.

Currently, individuals and married couples can gift or bequeath $13.61 million and $27.22 million, respectively, before a 40% federal estate tax kicks in. That exemption is due to expire at the end of 2025, but it looks likely that it will be extended given the Republican Party's total control of Washington.

Here are 12 little-known techniques that the richest taxpayers use to pay less to Uncle Sam:

Using trusts to give away homes and country houses

Qualified personal residence trusts, better known as "QPRTs," effectively freeze the value of a real estate property for tax purposes. The homeowner puts the primary residence or vacation home in the trust and retains ownership for however many years they choose. When the trust ends, the property is transferred out of the taxable estate. The estate only has to pay gift tax on the value of the property when the trust was formed even if the home has appreciated by millions in value.

QPRTs have become more popular in the past year as interest rate hikes confer another tax benefit. It seems too good to be true, but there are a few strings attached.

Passing wealth to future generations with trusts that last up to 1,000 years

From the Wrigley family behind the titular chewing gum brand to Jeff Bezos' mother, an Amazon investor, some of America's wealthiest use generation-skipping trusts to avoid paying wealth transfer taxes and provide for future heirs.

These so-called dynasty trusts allow taxpayers to pass along wealth to generations that haven't even been born yet and only be subject to the 40% generation-skipping tax once. Many states have eased trust limits to get the business of the wealthy, with Florida and Wyoming allowing dynasty trusts to last as long as 1,000 years, which spans about 40 generations.

The heirs don't own the trust assets but rather have lifetime rights to the trust's income and real estate. These trusts even protect assets from future creditors and shield them in the event of a divorce.

Giving to charity via trusts that also yield income

Charitable remainder trusts (CRTs) allow moneyed Americans to have their cake and eat it too.

Plenty of affluent taxpayers deduct charitable donations from their taxable income, but the ultra-rich can parlay their philanthropy into guaranteed income for life.

Taxpayers put assets in the trust, collect annual payments for as long as they live, and get a partial tax break. Only 10% of what remains in the CRT has to go to a designated charity to pass muster with the IRS.

These trusts can be funded with a wide range of assets, from yachts to property to closely held businesses, making them particularly useful for entrepreneurs looking to cash out and do good.

Holding life insurance policies via trusts to save on taxes and protect heirs from lawsuits

Rich founders with illiquid assets can take out life insurance policies to cover their estate taxes. They get the most bang for their buck if they put the life insurance policy inside a trust rather than owning it directly. The irrevocable life insurance trust (ILIT) collects the death benefit, pays the tax bill, and distributes whatever is left according to the insured individual's wishes. Any payout is also protected from estate taxes, even if the insured's estate and death benefit exceed the exemption.

There are other perks. If the insured wants to make sure that their heirs are protected from creditors or divorcing spouses, they can use ILITs to be doubly safe. While the law varies by state, trusts and life insurance both have strong legal protections.

Using charitable trusts that give the remainder to heirs

Also known as the Jackie O trust since it was used by the late First Lady, a charitable lead trust or CLT makes annual payments to a charity or multiple. Whatever is left when the trust expires goes to a remainder beneficiary picked by the grantor, typically their children.

If the assets within the trusts appreciate faster than an interest rate set by the IRS at the time of funding, the beneficiary can even end up with a bigger inheritance. CLTs can also be used to discreetly transfer wealth while being publicly philanthropic.

"I've seen lawyers use these to plan for mistresses, to plan for children that perhaps the spouse doesn't know about," lawyer Edward Renn told Business Insider.

Taking loans to pay estate taxes

Unlike QPRTs and CRTs, this technique is highly scrutinized by the IRS and comes with a lot of hoops to jump through.

Families that are asset-rich but cash-poor and facing an estate tax bill can either rush to sell those assets to make the nine-month deadline or take a loan.

The estate can make an upfront deduction on the interest of these Graegin loans, named after a 1988 Tax Court case. Further, if illiquid assets make up at least 35% of the estate's value, families can defer estate tax for as long as 14 years, paying in installments with interest, and effectively taking a loan from the government.

Graegin loans are prime targets for auditors and have led to years-long legal battles, but the savings can be worth it for rich families.

Buying offshore life insurance policies

Private-placement life insurance, or PPLI, can be used to pass on assets from stocks to yachts to heirs without incurring any estate tax.

In short, an attorney sets up a trust for a wealthy client. The trust owns the life-insurance policy that's created offshore. The assets in the trust are treated as premiums, and if structured correctly, the benefit and assets in the policy are bequeathed free of estate tax.

It's only relevant to the ultra-wealthy, often requiring $5 million in upfront premiums as well as a small army of professionals to set up and administer, including trust and estate attorneys, asset managers, custodians, and tax advisors.

Transferring depressed assets during a market slump

The down market has one silver lining for high-net-worth individuals. It is an optimal time to create new trusts as people can transfer depressed assets, whether they are stocks or bitcoin, at a lower tax basis.

The long-favored grantor-retained annuity trusts (GRATs) can confer big tax savings during recessions. These trusts pay a fixed annuity during the trust term, which is usually two years, and any appreciation of the assets' value is not subject to estate tax.

GRATs have picked up in popularity in the past year as the Federal Reserve has raised interest rates, which eat into the returns on these trusts.

Stashing assets in trusts for a spouse

The wealthy can save on taxes by putting their riches in trusts before the Trump tax cuts expire, but some don't feel ready to give their fortunes to their kids yet.

Luckily, there is a compromise. Using a spousal lifetime-access trust, also known as a "SLAT," married taxpayers can stash their fortunes in trusts that pay distributions to their spouses rather than giving assets to their kids. The beneficiary spouse can use this cash flow to fund the couple's lifestyle. After this spouse dies, the trust passes to new beneficiaries, typically the couple's children.

Buyer beware: divorce can mean losing those dollars forever. But millions in potential tax savings can be worth the gamble.

Using trusts that pay cash to spouses but keep the assets for the kids

When the wealthy remarry, they often have to balance the needs of their new spouse and their kids from a prior marriage. Trusts can be used to take care of the spouses, but the adult kids want their piece of the pie.

There is a way to make everyone happy. With a qualified terminable interest property trust, also known as a "QTIP," married taxpayers can put their fortunes in trusts that pay distributions such as stock dividends to their spouses. The income-producing assets, however, are untouched, and when the beneficiary spouse dies, everything in the trust is transferred to new beneficiaries, who are typically the adult children of the spouse who funds the trust.

The main benefit of QTIPs is peace of mind. If the beneficiary spouse remarries, they still get the cash, but they can't gift the assets to their new partner.

Transferring business assets to family-limited partnerships at big discounts

Sam Walton, the founder of Walmart, used a family limited partnership or "FLP" to save his kids and wife from paying any estate taxes on multibillion-dollar family fortune.

With an FLP, an individual — often a parent or two parents — pools their business assets, commonly real estate or stocks. As a general partner, the original individual can name their children as limited partners and give them interest in the partnership. The kids get cash distributions from revenue generated by the trust but do not have control over the actual assets. This control is appealing to parents who want to hold the purse strings.

Another sweetener: You can claim a discount on the assets transferred to the FLP and use even less of your estate-tax exemption. Though the IRS scrutinizes these discounts, they can be worth the gamble. The right lawyer can justify a discount of 45% or higher for less liquid assets, such as privately held businesses.

Giving stock to parents and inheriting it back when they die

Wealthy founders who built their businesses from the ground up face hefty capital gains taxes when they cash out. Instead of selling the shares outright, they can save on taxes by gifting their stock to their parents and waiting to sell the stock until they inherit it after their parents' death. These "upstream transfers" take advantage of a tax loophole for inherited assets that boosts the cost basis to its fair market value at the time of inheritance.

This tactic can also be used to save on estate taxes by ultra-rich entrepreneurs who have already used their exemption but have less-wealthy parents who haven't. They can stash the assets in a trust that benefits their parents until their passing and then their children. When the children inherit the assets, the federal estate tax doesn't kick in as long as the grandparents' estate does not exceed $27.22 million.

Lawyers warn that upstream planning comes with risks. Individuals can lose their assets for good if their parents decide to share the wealth with a new spouse or other children.

• Elon Musk's DOGE is considering developing a mobile app for tax filing, per the Washington Post.
• The news sent shares in tax service providers Intuit and H&R Block tumbling.
• Elon Musk and Vivek Ramaswamy have been tasked with slashing government spending under Trump.

Elon Musk's Department of Government Efficiency reportedly has its first target — the US tax system.

Musk and Vivek Ramaswamy's cost-cutting agency has discussed developing a mobile app that would let Americans file their taxes for free, two sources told The Washington Post.

The news sent the stock prices of H&R Block and Intuit, which sell tax-filing services such as Turbotax, tumbling on Tuesday. Shares were down 8% and 5%, respectively.

The launch of an app would see Musk and Ramaswamy, who have been die-hard supporters of Donald Trump's successful election campaign, follow in the footsteps of Joe Biden.

The outgoing president's Inflation Reduction Act introduced Direct File, a free IRS tax-filing system that rolled out in February.

The legislation, which attempted to break the stranglehold held by private companies on tax filing, was strongly opposed by Republicans at the time but has been used by over 100,000 taxpayers this year, according to the Treasury.

When Trump announced that Musk and Ramaswamy would lead the organization, he said they would be tasked with cutting regulation and government spending "from outside of government," with a deadline of July 2026.

Musk and Ramaswamy have suggested they could cut $2 trillion from the federal budget and "delete" entire government departments, although political experts previously told Business Insider that these goals are unrealistic.

Since its announcement last week, DOGE has been active on Musk's social media platform, X, with an account for the organization posting that it was seeking to hire "super high-IQ small-government revolutionaries," and Musk proposing an online leaderboard for "the most insanely dumb spending of your tax dollars."

Musk and DOGE did not respond to a request for comment from Business Insider, sent outside normal working hours.

A prominent economist trying to influence the incoming Trump administration's economic policies is facing criticism from conservative groups over his organization's liberal donors and past criticism of President-elect Trump's agenda.

Oren Cass, who previously worked on both of Mitt Romney's presidential campaigns, is the founder and chief economist of American Compass, a conservative think tank that has made inroads with multiple prominent Republican lawmakers in Congress.

Over the past year, Cass' philosophy has reportedly gained traction in some pro-Trump circles, but several conservatives have taken issue with his increased influence and worry his policies will undermine the Trump agenda based on his past anti-Trump comments. During a May 2021 interview, Cass likened Trump to "an earthquake" because he believed Trump was a "disaster in many ways."

"Self-proclaimed ‘conservative’ Oren Cass and his American Compass is not, and will never be, viewed as a legitimate voice in Republican policy circles. CNBC’s Joe Kernen got it right when he called them 'bonkers, walking quacking uniparty progressivism.' And their funding only proves that," Club for Growth President David McIntosh told Fox News Digital.

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"As American Compass continues to stay in business thanks to generous donations from radical left-wing organizations like the Hewlett Foundation and the Omidyar Network, Club for Growth is proud to stand with President Trump and the overwhelming majority of Republican voters who support actual conservative policies, like the proposals described in our Foundation’s recent "Freedom Forward Policy Handbook," including: tax cuts, spending cuts to reduce the deficit, deregulation to boost American manufacturing, American-first energy policies, school choice and worker freedom," he continued.

A significant chunk of American Compass' funding comes from a handful of foundations tied to liberal causes, including almost $2 million from the William and Flora Hewlett Foundation and the Omidyar Network, which has provided 11% of American Compass' funding and is led by a founder described as "notable for funding liberal-in-conservative clothing groups that target former president Donald Trump and his supporters."

American Compass is also associated with the "Reimagining Capitalism Partners" fund, which includes the Center for American Progress, Sixteen Thirty Fund-linked Groundwork Action, Progressive Caucus Action Fund, Tides Advocacy and Demos, a socialist think tank.

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Cass’ group has also received over $200,000 from the Rockefeller Foundation, a multibillion-dollar foundation that has bankrolled several left-wing causes, including radical environmental groups and "Imagining America," a "coalition of colleges engaged in left-wing curriculum development," according to the Capital Research Center. 

The San Francisco Foundation, which has funneled hundreds of millions of dollars to far-left groups, gave $100,000 to American Compass.

When Fox News Digital pressed Cass on his organization's funding and criticism from rival conservative groups, he blasted the "anti-tax zealots" criticizing his organization.

"American Compass advocates for limited government and a commitment to paying for the government that we have rather than leaving the bill to our children," Cass told Fox News Digital. "Anti-tax zealots can lobby for larger deficits if they want, but conservatives are under no obligation to follow them into the fiscal ditch." 

In addition to the money that American Compass has received from left-wing groups, its advisory board includes multiple Democrats, including Ganesh Sitaraman, who served as a senior fellow at the Center for American Progress and has been a longtime adviser to Sen. Elizabeth Warren, D-Mass., dating back to her 2012 Senate campaign. 

Matt Stoller, the research director at the American Economic Liberties Project, which received at least $500,000 from George Soros’ Foundation to Promote Open Society and at least $230,000 from the Omidyar Network Fund, is also on the advisory board and has donated tens of thousands of dollars to Democrats.

Tom Hebert, the director of competition and regulatory policy at Americans for Tax Reform, blasted Cass as an "anti-Trump activist" in a statement to Fox News Digital.

"The American people returned Donald Trump to the White House with a strong economic mandate: cut taxes, slash job-killing regulations and promote worker freedom. Oren Cass founded American Compass as a ‘post-Trump’ organization and opposes the Trump economic agenda at every level, even calling the landmark Trump tax cuts an ‘expensive failure,’" Hebert said. 

"Cass is not a conservative. He’s an anti-Trump activist that MSNBC has on speed dial to undermine Trump’s second-term agenda."

In addition to Hebert’s quote, Americans for Tax Reform published a piece in July with the headline, "Who Said It, Oren or Warren?" The piece pointed to the tax plans of Sen. Warren and Cass’ American Compass, which were both published a month earlier and include multiple quotes from Warren and Cass, asking readers to identify the source of each quote.

"Warren’s plan calls on Democrats to reject extending the Trump tax cuts," the piece says. "The proposed budget released by Oren Cass’ American Compass, which describes itself as ‘the flagship for a healthier and more responsive post-Trump conservative movement,’ calls for the full expiration of the 2017 Trump tax cuts, would increase the corporate rate to the Biden-preferred level of 28%, and backs Warren’s call for a financial transaction tax."

Americans for Tax Reform went on to call American Compass "left-wing" and said Cass was the "leader of the tax-hiking American Compass" in a separate post from earlier this year due to his opposition to Trump’s tax cuts.

Cass was mocked earlier this year after he went on CNBC and suggested that lowering taxes and the corporate tax rate is not "conservative," adding, "There is nothing conservative about that … absolute radical nonsensical notion." 

The clip prompted Richard Stern, who serves as the director of the Heritage Foundation's Grover M. Hermann Center for the Federal Budget, to sound off on Cass, saying, "[Cass on] CNBC this morning defending the uniparty's attempt to steal your money and put it in their hands — and to stop capital from flowing to new and small businesses. With ‘friends’ like this, who needs socialists."

During a C-SPAN interview over the weekend, Cass praised some aspects of Trump's first administration, saying the United States "made a tremendous amount of progress" by implementing a "much more aggressive trade policy and confronting China." He also praised the incoming Trump-Vance administration on some of its Cabinet picks, including calling Sen. Marco Rubio, R-Fla., an "excellent" State Department pick because of his work sounding the alarm about China being our "main adversary." 

He added he hopes the administration will have a "labor policy that is much more focused on the interests of workers," pointing to Vice President-elect JD Vance's past comments and saying commerce and labor are the "heart of our economic policy."

Despite Cass offering some praise of Trump, he has been a longtime critic of Trump's 2017 tax cuts, calling them an "expensive failure" and saying Trumpism is facing an "inevitable expiration" and adding in September 2020 that Trump is "building no intellectual foundation, no institutional infrastructure and no policy agenda."

After Trump's 2024 election victory, Cass continued to signal opposition to Trump's tax policy. 

"Well, I think we have today a politics where both candidates go around talking about how they`re just going to cut everybody`s taxes," Cass told PBS Nov. 10. "And, of course, everybody likes a tax cut. But I don`t think those are the things that are going to turn our economy in a much better direction."

During another interview from earlier this year, Cass said one of the things he thought was "most encouraging" was that there aren't "mini Trumps" and that he is "extremely encouraged" by the post-Trump era Republican leaders he is seeing.