By Jeremy Frazie, AIF®, PPC®
Imagine the day that we can rest easy knowing that they’ll become financially wise enough to grow our life’s earnings into something bigger than ourselves. No matter what you decide to do, there’s nothing wrong with weighing your options and figuring out how you want your legacy to stand after you’re gone.
You might be protecting your assets in the best possible way now, but what happens after it’s transferred? Does it bear the burden of taxes? Can it be affected by creditors? Your estate may be protected when it’s in your hands, but will that continue once in your heir’s possession?
You may wonder how to transfer your wealth to your loved ones without losing significant portions to taxes. It’s a complicated process, but there are ways to keep it simple while leaving a legacy you can be proud of. Below, we explore ways to transfer wealth to the next generation.
Make Direct Payments
This is one of the easiest ways to transfer your wealth without the hassle of taxes. You could simply make direct payments to your children or grandchildren. Many institutions will allow you to pay your grandchildren’s tuition directly from your account. You can also conveniently take care of your priorities, such as medical expenses, by automating payments to your 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 it 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 taxed portion of your estate. You can gift up to $15,000 (1) per year to one person without having to pay gift tax. If you are splitting the gift with your spouse, you can both gift up to $30,000. To effectively transfer wealth to the next generation, you can ensure that you give the maximum amount every year.
However, if you are gifting the wealth to your spouse, there is no limit to the amount you can send to them. This only applies to U.S. citizens, however. If your spouse is not a U.S. citizen, there is an annual limit of $155,000, after which you would have to pay a gift tax over it.
Creating a trust is one sure way of transferring wealth to the next generation. To oversee the use of your assets, you can create a trust with specific guidelines for passing your wealth on to beneficiaries. If you create an irrevocable trust, you might even be able to get more tax benefits depending on the nature of your agreement.
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 responsible for paying taxes either.
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.
Consult With a Wealth Advisor
At Frazie Wealth Management, we have ample experience in managing family legacies and estate planning. We will help you leave a lasting legacy if you would let us. Request your free 60-minute listening session today or reach out to us at (740) 354-9585 or by email at Jeremy@fraziewm.com.
Jeremy Frazie is founder, owner, and wealth manager at Frazie Wealth Management, a wealth services firm that helps manage and organize the financial affairs of select families in the tri-state area. With over a decade of experience, Jeremy specializes in serving business owners, professionals, and individuals in the Retirement Red Zone, providing a wide range of services to cover every aspect of their financial life through every stage of their retirement. Jeremy is known for his client-centered, relationship-based process that gives his clients the tools and support they need to achieve their goals and overcome obstacles. He is deeply passionate about making an impact on others’ lives and helping them look to the future with confidence. Jeremy graduated from Marshall University, where he played defensive back for the Thundering Herd football team, with a degree in finance, and has both the Accredited Investment Fiduciary® (AIF®) and Professional Plan Consultant® (PPC®) designations.
When he’s not working, Jeremy enjoys spending time with his wife, Erika, and their two sons, Breydan and Boston. You can often find him visiting the Florida gulf beaches, watching sporting events, golfing, and fostering his love–hate relationship with CrossFit. To learn more about Jeremy, connect with him on LinkedIn.
These are the opinions of Jeremy Frazie and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized advice. Cambridge does not offer tax advice.