Everyone wants to leave a lasting legacy for future generations, but how do you shield the wealth you transfer so it can be enjoyed by your heirs? Estate planning and gifting can come with challenges, but with appropriate guidance and resources, you can create a legacy that lasts. Here are some steps you can take to help you leave a legacy you can be proud of.
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 $16,000 for 2022 ($17,000 in 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 $32,000 combined for 2022 ($34,000 for 2023). To effectively transfer wealth to the next generation, consider giving 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 2022, the current lifetime exclusion is $12.06 million for individuals and $24.12 million for married couples. (For 2023, the lifetime exclusions are $12.92 million and $25.84 million, 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 2022, an individual can gift up to $80,000 and a married couple could gift up to $160,000 (for 2023, this increases to $85,000 and $170,000, respectively) 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 may comes in 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 can 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.
Take Charge of Your Financial Future
At Millstone Financial Group, our mission is to provide high-quality advice tailored to your individual goals and values. We want to help you make the most of your life and leave a lasting legacy for your family. Schedule an introductory call with one of our wealth advisors today and see how we can help you pursue your financial goals with confidence. Schedule a complimentary consultation by calling (732) 385-8544 or emailing Michael Russo at mrusso@millstonefinancial.net to start planning your future.
About Mike
Michael Russo is Chief Investment Officer at Millstone Financial Group, an independent financial advisory firm helping pre-retirees and retirees pursue their retirement goals. He has 30 years of industry experience and strives to help his clients understand investments and make sure every client is presented with sound investment management philosophies and retirement distribution strategies to help reduce the chances of running out of money in retirement. Mike graduated from Montclair State University with a degree in business administration, majoring in finance. He spent over 10 years working for Brown Brothers Harriman and MetLife. While working for a local financial consulting firm, Mike met Donald Albach, and together they founded Millstone Financial Group to help people navigate the complexities of planning for retirement. Mike was raised in a modest household, where family always came first. He attributes his success to both of his hardworking parents, who instilled in him core values and integrity. Mike has been married to his wife, Maryann, since 1992. They reside in Howell with their three children, Matt, Craig, and Kellie. Mike is an avid sports fan and golfer. He is also a member of Battleground Country Club and enjoys being out on the course or having dinner with good friends and clients. To learn more about Mike, connect with him on LinkedIn.
Advisory services are offered through Millstone Financial Group Limited Liability Company, a Registered Investment Advisor in the State of New Jersey. Insurance products and services are offered through Millstone Financial Group Limited Liability Company. Millstone Financial Group Limited Liability Company is not affiliated with or endorsed by the Social Security Administration or any government agency.
All material discussed is for informational purposes only. Opinions expressed are solely those of Millstone Financial Group Limited Liability Company and staff. All topics covered are believed to be from reliable sources; however, Millstone Financial Group Limited Liability Company makes no representations as to its accuracy or completeness. Investing involves risk including the loss of principle.
This presentation shall in no way be construed as a solicitation to sell securities or investment advisory services to residents of any state other than New Jersey, or where otherwise permitted. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
This material is intended to provide general financial education and is not written or intended as tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
