Do you want to make sure your wealth is passed on to the next generation in a tax-efficient way? Whether in the form of cash, appreciated stock, or some other asset, it’s important to consider every family member’s financial situation before making any decisions.
Let’s explore some of the options available to you when it comes to passing on your wealth to the next generation in a way that benefits your entire family.
Estate planning is an important process that allows you to control how your assets will be distributed after your death. Without a plan, your assets may be distributed in ways that you do not desire or that may not be beneficial to your loved ones.
There are many factors to consider when estate planning, including what type of asset protection strategies to use, how to minimize taxes, and who will receive which assets. You should also consider what would happen if you become incapacitated and can no longer make decisions for yourself.
A living trust is a legal document that outlines how you want your assets to be managed and distributed after you die. You can name a trustee to oversee the trust, and beneficiaries who will receive the assets.
There are several reasons to consider creating a living trust:
- Avoid probate: Probate is the legal process of distributing a person's assets after they die. If you have a living trust, your assets can be transferred to your beneficiaries without going through probate. This can save time and money, as well as keep your affairs private.
- Manage your assets if you become incapacitated: If you become incapacitated, the trustee you’ve named in your living trust can step in and manage your assets according to your instructions. This can help avoid a costly and time-consuming guardianship or conservatorship proceeding.
- Pass on your assets to your beneficiaries: A living trust can be an efficient way to pass on your assets to your heirs. When you die, the trustee can distribute the assets according to your instructions without having to go through probate.
Life Insurance Policies
Life insurance plans can be a powerful tool when it comes to transferring wealth to the next generation. You can help financially shield your loved ones in the case of your death by purchasing a life insurance policy.
Furthermore, life insurance policies might provide tax advantages, reducing the amount of taxes (1) your heirs will have to pay on your estate. These advantages make life insurance policies an important component of any wealth transfer strategy.
Gifting Appreciated Stock
Another way to transfer wealth in a tax-efficient manner is to make gifts of appreciated stock. Over the years, we’ve had many clients who wish to give large gifts to their adult children, usually in the form of a wedding gift or a down payment on a house. Clients often think that gifting cash is the best method, but in reality, any gift of cash over $15,000 per person may result in potential tax consequences.
Instead, we often recommend alternative gifting strategies such as gifting appreciated stock or other assets. This is usually much more tax-efficient than gifting outright cash, especially if the adult children are in a lower tax bracket.
Family Limited Partnerships
A family limited partnership (FLP) is a type of partnership created under state law. The general partner(s) (the older generation) will manage the FLP and have liability for its debts. The limited partners (the younger generation) are not liable for the debts of the FLP beyond their investment, and they do not participate in management.
An FLP can be used to pass on wealth to the next generation while reducing gift and estate taxes. (2) When done correctly, an FLP can also help guard your assets from creditors. If you’re considering creating an FLP, it’s important to consult an experienced attorney who can help you navigate the laws in your state and ensure your FLP is properly structured.
Creating an FLP is a complex process, but with the right guidance, it can be a valuable tool for passing on your wealth to the next generation.
Leave a Legacy for Your Loved Ones
No one knows what the future holds, but with careful planning, you can ensure your wealth will be passed on to the next generation in a way that honors your wishes and also benefits them. Our FSI Wealth Management team would love the opportunity to partner with you in this process. Schedule a no-obligation introductory meeting by calling me at (619) 681-1911, emailing email@example.com, or scheduling a time online. Let’s get started today to plan for tomorrow.
Paul Neves is president and wealth manager at FSI Wealth Management, a leading independent wealth management firm based in San Diego, California. Paul is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Financial Consultant®. Working with clients in the financial industry since 1989, Paul has dedicated his life to seeing his clients and their families reach their goals and fulfill the financial plans they have created for their life. He believes that trust and respect are key to building strong, long-lasting relationships with his clients. Paul is known for helping families take the mystery out of preparing for today and tomorrow.
Paul graduated from San Diego State University in 1989 with a bachelor’s degree in business administration, concentrating in financial planning and services. He is currently a resident of Point Loma, California, where he spends his free time with his family and friends either boating, cooking, wine tasting, or traveling. To learn more about Paul, connect with him on LinkedIn.
Securities America does not provide legal advice.