By Brandon Perlow
As parents, one of our aspirations is to leave an enduring legacy for the generations that follow. While cherished family recipes, heirlooms, and wisdom are common ways of passing on our stories and values, thoughtfully sharing your wealth with loved ones is equally important.
But how can you guarantee you’ll leave the maximum possible wealth to your loved ones? And how can you reduce the amount taken by taxes? Although it may seem like a complex process, there are ways to simplify it while leaving a legacy you can take pride in. In the following sections, we delve into strategies for transferring wealth to the next generation.
Make Direct Payments
Simply making direct payments for your children or grandchildren’s expenses is one of the easiest ways to transfer your wealth without the hassle of taxes. Many institutions will allow you to pay your grandchildren’s tuition directly from your account. You can also conveniently take care of other important expenses, such as medical expenses, by automating payments to their healthcare provider.
When you make this sort of payment to an organization or institution, it helps you bypass the burden of gift tax, which can be a hefty price to pay on your assets. However, if you gift the money directly to the recipient, you might still be subject to gift taxes.
Give Annual Gifts
You could also decide to gift some of your assets to your loved ones. Giving gifts helps you reduce the taxable portion of your estate, and you can gift up to $17,000 for 2023 to a loved one before any gift taxes are incurred. If you are splitting the gift with your spouse, you can give up to $34,000 combined for 2023. To effectively transfer wealth to the next generation, you can ensure that you give the maximum amount every year.
It’s worth noting that once you gift more than these limits, the excess amount spills into the “lifetime exclusion bucket.” You must use this entire amount before the IRS requires you to pay gift tax. For 2023, the current lifetime exclusions are $12.92 million and $25.84 million for individuals and married couples, respectively. You will be required to file a gift tax form for any amounts that exceed the annual gifting limits, individually or jointly. This is how the IRS will track your lifetime exclusion amount.
Another great way to transfer wealth to your children and grandchildren is through the use of 529 college savings plans. There is a special provision that allows donors to contribute 5 years’ worth of gifts as a lump sum. This means for 2023, an individual can gift up to $85,000 and a married couple could gift up to $170,000 without incurring gift taxes! The beneficiary can then withdraw the funds and the investment growth tax-free to pay for qualified education expenses.
Irrevocable Trusts
Creating a trust is another way to transfer wealth to the next generation. To oversee the use of your assets, you can create a trust with specific guidelines for passing your wealth to beneficiaries.
When your estate is significant, an irrevocable trust comes in quite handy. You transfer all your assets from your estate to your trust, thereby bypassing estate tax. Additionally, when you accrue income on the assets you hold in your trust, you are not personally responsible for paying taxes since the trust is considered a separate entity. As such, the trust will be taxed directly on any retained income and beneficiaries will be taxed on any distributions of income. This is an effective wealth transfer strategy since beneficiaries are typically in lower tax brackets.
It’s also important to note that irrevocable trusts are permanently binding; you cannot change any of the terms nor beneficiaries. Once you have handed over your wealth to the trustees, they manage and transfer it according to your specific wishes.
Consider the Gift of Time
I’m noticing more and more that it’s not as much about leaving money to your children as it is enjoying the fruits of your lifelong labors through quality time with them while you’re still alive. Experiences shared as a family will mean much more to your kids than a fancy car on their 16th birthday. Rather than safeguarding your wealth to be left after you’re gone, consider buying a vacation home where everyone can gather or taking your whole family on that dream trip to Paris. These experiences will produce lifelong memories that are likely more impactful than leaving them a larger inheritance.
Work With a Professional
At ABLE Financial Group, we are dedicated to offering purpose-driven guidance in alignment with our firm’s principles, enabling our clients to fully enjoy their lives. We invite you to meet with us to explore your goals and strategies for creating a lasting legacy for your family. To learn more about our team and the ways we can help guide you, we invite you to call 480.258.6108 or email adam@ablefinancialgroup.com today.
The information is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
About Brandon
Brandon Perlow, CFP® professional, has a diverse background, originally hailing from Buffalo Grove, Illinois. He graduated early in 2008 with a Bachelor of Science degree, double-majoring in Political Science and History, with honors, from the University of Wisconsin-Madison. Following this, in 2010, he earned a Master of Science degree in Public Policy & Administration from the London School of Economics, with merit.
Between 2010 and 2013, Brandon worked in the private equity sector in Los Angeles, California. From 2013 to 2017, he engaged in public speaking across the United States, focusing on topics related to student travel and cultural intelligence (CQ). Impressively, Brandon has extensive travel experience, having visited all 7 continents and all 50 states before the age of 25.
In 2018, Brandon transitioned to the financial services industry in Arizona, concentrating on investment planning and retirement preparation. As a CERTIFIED FINANCIAL PLANNER® practitioner, he brings his experience and education to clients of ABLE Financial Group. He specializes in Medicare, ESG investing, and working with next generation clients. He previously served as a Financial Advisor at both Merrill Lynch and Prudential Advisors in Scottsdale and Phoenix.
Beyond his professional pursuits, Brandon is passionate about volunteering. He currently serves on the Board of Directors for Gesher Disability Resources in Scottsdale and the University of Wisconsin Hillel Foundation. He is also on the Board of Directors for the Alumni & Friends of the London School of Economics in the United States.
In the past, Brandon has contributed to various boards, including the City of Scottsdale Loss Trust Fund Board of Directors, the Real Estate & Finance Committee of the Jewish Federation of Greater Phoenix, and Business B’yachad at Temple Kol Ami.
In his spare time, Brandon is an avid runner, hiker, and adventurer. In 2021, he ran over 1,000 miles and served on the Pace Team for the Rock n Roll Arizona Marathon and Half Marathon in 2020, 2022, and 2023. He has achieved remarkable physical feats, including summiting Mt. Kilimanjaro, the tallest mountain in Africa, and completing the Rim-2-Rim hike at the Grand Canyon. Brandon resides in Scottsdale with his wife Laurel, their daughter Naomi, and their rescue Siberian Husky, Laney.
