Trusts are used by the ultra-wealthy to shield fortunes from taxes and public scrutiny. ChatGPT explains how trusts work, starting with the basics of a legal arrangement where assets are managed for the benefit of others. Trusts offer tax advantages, privacy, and protection from lawsuits and divorces.

One strategy is to transfer wealth into a trust to shield assets from estate taxes, lawsuits, and divorces. Wealthy individuals can maintain control over trust assets while enjoying tax benefits by paying taxes on the trust’s income themselves. This allows practical control over assets that are legally given away.

Dynasty trusts in states like South Dakota can last centuries, avoiding estate taxes by keeping wealth inside the trust forever. Offshore trusts in locations like the Cayman Islands offer privacy and limit government scrutiny, making it difficult to trace who benefits from the money. Trusts often own LLCs to obscure beneficial ownership and minimize taxes legally.

Trusts can defer taxes through gift tax limits, step-up in basis, and charitable remainder trusts. These mechanisms, though legal, are complex and expensive to set up, accessible only to wealthy families. The U.S., particularly South Dakota, Nevada, and Delaware, has become a global trust haven, holding over $600 billion in assets in South Dakota trusts alone.

The implications of trust-based wealth protection are that the ultra-wealthy can pass on generational wealth almost tax-free. Ordinary Americans face standard estate taxation, reinforcing wealth inequality. Trust structures cost tens of thousands in legal fees, creating two separate wealth systems: one for the rich with trusts and one for everyone else facing standard taxation.

Read more at Yahoo Finance: I Asked ChatGPT How the Rich Hide Money in Trusts: Here’s Its Explanation