Important Insights for Intergenerational Wealth Transfer
When you begin to think about your legacy and transferring your wealth there is no shortage of things to take into consideration. There are probate and inheritance traps and numerous tax implications that present challenges.
An important aspect of a good plan is to avoid being financially blindsided because of the necessary expertise or the lack of collaboration between the different professionals required to manage investments, taxes, estate planning, and other details of wealth transference.
A surprising number of wealthy families do not have an adequate intergenerational wealth transfer plan in place. You only have to look at news reports of high-profile celebrities that don’t have clear directives and strategies in place and the complexities that arise. This article may help you begin critical conversations to preserve your wealth and legacy.
Big picture and the big enabler of ensuring there is a family governance structure
In the bigger scheme of thing, if you don’t have a shared family perspective on wealth with a clear mission and clear communication — taxes, wealth planning, you name it — being able to sustain wealth across generations is probably not going to succeed. A CERTIFIED FINANCIAL PLANNERTM can help in this regard as an objective catalyst to begin family discussions and provide information that can foster agreement.
Transferring highly appreciated assets could subject heirs to a “step-up” valuation in the cost basis of the asset at the time of the owner’s death. As an example, an asset that was originally purchased for $300,000 and now worth $800,000, would trigger capital gains for the recipient on the $500,000 difference. There are highly valuable asset transfer strategies to minimize taxes under this scenario and why it is a good idea to consult a CERTIFIED FINANCIAL PLANNERTM that has substantial tax expertise.
Certainty of death and taxes — well maybe not all taxes — Managing life insurance proceeds in your estate
You can avoid having your life insurance proceeds taxed if you create an irrevocable life insurance trust. You’d essentially need to set up a trust and transfer the ownership of it to another person. Keep in mind that the trust is irrevocable and you wouldn’t be able to make changes to it unless you have the consent of the trust’s beneficiary.
By transferring over your life insurance policy, your death benefits wouldn’t be included in your estate. There is a timing consideration that requires it to be done prior to your death to avoid your life insurance proceeds being considered part of your taxable estate. This is just another reason to consult a CERTIFIED FINANCIAL PLANNERTM with a view towards after-tax wealth preservation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult your financial advisor regarding your situation. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Learn more about protecting and preserving your wealth at www.aftertaxwealth.com
Nathan H. Medina, CRPC, EA
CRPC designation conferred by College for Financial Planning
CERTIFIED FINANCIAL PLANNER™
Wealth Manager | After-Tax Wealth Management
CA Insurance Lic#OC32917
T: (619) 365-4596 | F: 619 330-4900
email@example.com | www.aftertaxwealth.com