The Benefits of Wealth Transfer Planning
Starting the process of wealth transfer planning can be emotionally difficult, but our clients almost universally find that the process is well worth it. These are some of the key benefits:
- Your heirs can avoid probate
- You can greatly reduce estate tax liability
- You can ensure your heirs are financially supported
- You can choose who is responsible for estate and trust administration
- You can rest assured that your assets will be distributed according to your wishes
In order to take advantage of all the benefits of wealth transfer planning, you need a customized plan. We can help.
Key Considerations for a Transfer of Wealth
If you haven’t begun the process of wealth transfer planning yet, it’s easy to feel overwhelmed. Our team can guide you through each and every step of this important process, but before you begin, make sure you ask yourself the following questions:
- Is it best to split your assets equally among heirs or in accordance with their needs and preferences?
- Do you want assets to be distributed when heirs reach a certain age, immediately, or over time?
- If you have a family business, do you want to pass it down, or is it best to sell and divide profits?
- Have you spoken to your family members and other heirs about your estate plan?
- Are you intending to pass some of your wealth on to charitable causes?
Many of our clients don’t know exactly how they want to distribute their assets after death. That’s completely understandable. As estate planning attorneys, we know that this is a collaborative process. We’ll help you understand all of your options, and you can choose which options best suit your needs and those of your family.
Wealth Transfer Strategies
For high-net-worth individuals, creating a wealth transfer strategy often means combining several strategies into one. Depending on the kinds of assets you have and how you hope to distribute them, you may find some of these tools and strategies to be helpful:
Intentionally Defective Grantor Trusts
These trusts are meant to reduce the estate tax your loved ones will pay when they inherit certain assets (usually those that either generate income or appreciate rapidly). These are some of the types of assets that often go into defective grantor trusts:
- Stocks
- Real estate
- Closely held businesses and business interests
- Cash
- Marketable securities
As the grantor (the person creating the trust), you pay income tax associated with these assets. The assets usually aren’t counted as part of your estate when the IRS assesses estate tax.
Business Succession Planning
If you own a business, succession planning is an essential part of your overall wealth transfer strategy. Your succession plan addresses who will take over the business upon your death. If you have adult children or other family members who are interested and able to take over, you may pass the business down to them. You also may sell the business and distribute the profits.
Irrevocable Trusts
If you want to both protect assets and reduce the burden of estate taxes and other tax issues, you might consider making an irrevocable trust part of your estate plan.
With an irrevocable trust, you have the right to place assets into a trust, but you cannot remove them. You can choose a beneficiary to receive the assets in the trust after your passing. Notably, these trusts are not part of probate.
Tax Planning
Tax laws aren’t known for being easy to understand, and estate taxes are among the most complex of all. Tax planning is an integral part of your overall wealth transfer strategy. If you plan a wealth transfer without addressing the possible tax implications, your heirs might end up with a much smaller inheritance than you intended.
Charitable Trusts
These trusts can help make charitable giving more tax-efficient. However, in some cases, you may be able to benefit yourself (and a loved one) as well as a charity with the same trust.
With a charitable remainder trust, the trust will pay a certain amount of money to a beneficiary for a set period of time. Once that time is up, the remaining assets in the trust will be transferred to the charity of your choice.
Dynasty Trusts
If you’d like your wealth to be passed down through multiple generations, you might consider establishing something called a “dynasty trust.” With this kind of trust, you create rules for how funds are distributed. When you pass down wealth this way, generation-skipping transfer taxes are deferred until the end of the trust.
Grantor-Retained Annuity Trusts
Grantor-retained annuity trusts (GRATs) are similar to charitable remainder trusts. As the grantor, you establish the trust and receive annuity payments for a set period of time. After that time, the remainder of the trust is transferred to your heirs.
Life Insurance Trusts
Life insurance trusts can be a great way to reduce federal estate taxes. With this kind of strategy, your loved ones can inherit the proceeds of your life insurance policy.
Living Trusts
This kind of trust lets you grant a trustee authority over how assets are distributed. For instance, if you have a loved one who doesn’t manage money well, you can ask the trustee to handle ongoing disbursements.
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FAQ
What Is Wealth Transfer Planning?
Wealth transfer planning is the process of determining how your assets will be distributed after your death. If you have considerable assets across many asset classes — like real estate, businesses or business holdings, cash, investments, fine art, cryptocurrency, etc. — the process can be challenging. The right wealth transfer attorney can help you understand your options and work with you to create a plan.What Are the Strategies for Wealth Transfer?
There are many different strategies for a smooth, tax-advantaged wealth transfer. These are some of the most common:- Creating a trust
- Annual gifting (instead of a single transfer)
- Having a business succession plan
- Selecting the right asset protection strategies
- Creating private foundations
