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What's a strapped hectomillionaire (to say nothing of a billionaire) to do? First off, relax. Don't do anything crazy, like build a bomb shelter or open a Channel Islands trust with a dummy trustee to hide from taxes (it's illegal). Like the recession, the angry mob clamoring for your head will pass on. It's still good to be rich.
Trusts for children are nearly impossible to crack, as long as the assets weren't derived from criminal conduct and the trust was established long enough before the grantor went broke (there's no specified time; what's key is that you set up the trust before incurring the liabilities you're trying to avoid). If you're nice to your kids, they might even lend you some of the money you gave them.
There is one way to stash money overseas in secrecy: Store all the diamonds or gold bullion (but not gold certificates) you want in a Swiss bank without reporting it to the irs, since the investments don't pay interest. (Another option: raw land, which doesn't require reporting until it generates income.) It's perfectly legal to hire, say, Goldmoney.com, which will charge roughly $15,000 a year to store $10 million worth of bullion in the Channel Islands. But getting the money offshore without reporting it to the proper authorities is still a minefield of potential felonies.
FIRSt rule: forget trying to evade income taxes. that was always a tricky business, and now, with UBS being forced to squeal, is not worth the risk. Second rule: Don't panic.
Gordon's firm helps wealthy investors use complex trading strategies to trim their tax bills. But he tells his clients to be wary of their instinct to defer income (such as by owning a tax-deferred annuity).
The simplest strategy is to buy municipal bonds. Alas, at a 3.5% yield it takes a $7 million nut to earn the $250,000 a year that qualifies for sUBSistence living in Manhattan.
"We are definitely dusting off a lot of the high-tax-rate strategies that have fallen into disuse," says Isdale. Owners of low-basis stock in a public company can buy a put below the current price, sell a call above it and borrow most of the value of the stock. That gives them most of the economic benefits of a sale without an obligation to declare a capital gain. The IRS doesn't like this strategy and has gone after Denver billionaire Philip Anschutz for $144 million in back taxes for using it. You will probably prevail in Tax Court if you keep it simple and make sure the option strikes aren't too close to the stock's spot price.
Billionaire John Paul DeJoria encountered a bit of turbulence recently when he tried, as he usually does for short flights, to charter a low-end Lear ( LEA - news - people ) or West Wind. Not so easy. Because cash-strapped owners are mothballing their Gulfstreams and demurely switching to puddle-jumpers, DeJoria had to have a small jet flown in from Houston in order for him to take off from Austin. Before the crash, "most billionaires would take their big G4s and G5s anywhere," says DeJoria, who made his money with Paul Mitchell hair products and Patrón tequila. "Now business for these small planes is suddenly through the roof."
It appears that the überaffluent are not trimming their domestic retinues, although of course the recession provides a good smoke screen for disposing of a servant you don't like anyway. "People with real money need to maintain staff," says Mary Louise Starkey, president and founder of Starkey International Institute in Denver, which trains butlers, nannies, maids, chefs and sommeliers. "I see the people who have $100 million to $750 million maybe scaling back." Such riffraff may even be attempting to do their own domestic chores, as Martha Stewart's Homekeeping Handbook (Random House, 2006) chillingly seems to suggest. The book contains useful advice on the care and feeding of mansions, but, sniffs Starkey, "She's wrong about how long it takes to iron a shirt."