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 is Associate Financial Advisor at ABLE Financial Group, a financial services practice that focuses on transition planning and simplifying the complexities of their clients’ wealth. Brandon is originally from Buffalo Grove, Illinois. In 2008, he graduated early with a Bachelor of Science double-majoring in Political Science and History, with a certificate in European Studies with honors from the University of Wisconsin-Madison. In 2010, he graduated with a Master of Science in Public Policy & Administration from the London School of Economics, with merit. From 2010-2013, he was active working in the private equity sector, based in Los Angeles, California. From 2013-2017, he worked in public speaking across the United States, focused on topics related to student travel and CQ (cultural intelligence). He has extensive travel experience, having visited all 7 continents and all 50 states—before he turned 25.
In 2018, Brandon joined the financial services industry here in Arizona, focused on investment planning and preparing clients for retirement. He holds the Series 7 and Series 66 registrations, the Arizona Life Insurance License, and the AHIP Medicare Certification. He brings four years of financial services experience to ABLE Financial Group, previously working as a financial advisor at both Merrill Lynch and Prudential Advisors in Scottsdale and Phoenix, respectively.
Further, Brandon enjoys volunteering for causes he is passionate about. He is the current Chair of the City of Scottsdale Loss Trust Fund, which works with the city’s legal and risk management departments to optimize safety and efficiency across Scottsdale. He is also on the Board of Directors for the University of Wisconsin Hillel Foundation, the home of Jewish life on campus at his alma mater. He volunteers with both the University of Wisconsin Valley of the Sun Alumni Chapter, and the Alumni and Friends of the LSE in the United States. In the past, he has served on the Real Estate & Finance Committee of the Jewish Federation of Greater Phoenix, as well as Business B’yachad (together) at Temple Kol Ami, among other roles.
In his spare time, Brandon is an avid runner, hiker, and adventurer. In 2021, Brandon ran over 1,000 miles, and he has served on the Pace Team for the Rock n Roll Arizona Marathon and Half Marathon, helping others to successfully accomplish their goals in both 2020 and 2022. He has also summited Mt. Kilimanjaro, the tallest mountain in Africa at 19,341 feet above sea level—an eight-day trek. Most recently, he and his wife, Laurel, successfully hiked Rim-2-Rim at the Grand Canyon, from the North Rim to the South Rim, all in one 24-mile day. Brandon lives in Scottsdale with his wife, their daughter, Naomi, and their rescue Siberian Husky, Laney.
