The process of estate planning is going to mean different things for different people. What is important to one family may not be important to another. One of the deciding factors will be the extent of the estate in question. If you are simply transferring a relatively modest store of assets to your children and there is no estate tax responsibility, you are in a particular situation. However, if you have been extraordinarily successful throughout your life from a financial perspective, you must consider legacy wealth planning.
Legacy wealth planning will involve various different facets. If your assets exceed the 2014 $5.34 million exclusion amount, you certainly must position resources in a tax efficient manner.
There are a number of different ways to go about it. One possibility would be the creation of a generation-skipping trust. These trusts are sometimes called dynasty trusts. To provide a very basic explanation, the true beneficiaries are the grandchildren, not the children of the grantor. This is where the “generation-skipping” designation is derived from.
A tax on the transfer of the assets is only going to be imposed once over the two generations. But, the children that were theoretically skipped can receive earnings from the trust according to the trust terms. So they do in fact benefit, but they never own the assets so the estate tax is not imposed.
There are other ways to arrange for asset transfers in a tax efficient manner. One of them would be tax-free gifting. You can give as much as $14,000 to any number of gift recipients within a single calendar year free of the gift tax. If you’re married, the total amount that you can transfer as a couple would be $28,000 per person.
Suppose you have a married daughter. You could give your daughter and her husband each $28,000 annually. This could enable some significant tax-free transfers over a number of years. Aside from giving direct gifts, people who are interested in legacy wealth planning sometimes use this exemption to fund certain types of trusts or to distribute shares in family limited partnerships.
Asset protection can be part of your legacy wealth planning efforts as well because you want to make sure that your resources are not attached by creditors or claimants.
Picking the right vehicle of asset transfer for each individual can also be a factor. You can create a spendthrift trust for a spendthrift heir, or an incentive trust for someone that you would like to guide in a certain direction.
These are just a few of the many different legal devices that can be used. If you would like to explore legacy wealth planning in detail with a professional, we invite you to contact our firm to schedule a free Campbell CA estate planning consultation.