I’m a Financial Advisor: These Are the 5 Best Ways To Transfer Wealth

Family enjoying a beautiful day on the yacht together.
Aja Koska / Getty Images/iStockphoto

It’s one thing to make money, but building generational wealth requires strategic planning for what happens with your assets after you’re gone. GOBankingRates spoke with financial and estate planning professionals with wealthy clientele and found there is no one-size-fits-all solution.

“No two individuals or families are identical, so every estate plan must be as unique as the people creating it,” said Seth Bier, a Los Angeles estate planning attorney and founder of Bier Law. “We focus on planning for what’s most important for each client, but our universal goals are planning for people to keep as much of their hard-earned money as possible, keep them out of court, and bring their loved one’s closer together during tough emotional situations.”

Here are the best ways to make that happen.

Keep More Money in the Family by Minimizing Costs and Taxes

Expensive estate transfers shrink inheritances.

Bier explained that the costliest part of the process is usually probate, an often-lengthy legal process that validates wills. In his home state of California, for example, the so-called 4-3-2-1 law requires estates to pay a succession of attorney fees that pile on as the estate becomes more valuable. It’s 4% on the first $100,00, 3% on the next $100,000, 2% on the next $800,000 — that’s 9% on the first $1 million alone — then 1% on the remainder up to $9 million.

Depending on Where You Live, You Might Pay Taxes Twice

After the judicial system gets its bite, it’s the Taxman’s turn.

Make Your Money Work Better for You

“In 2023, we each have a federal estate tax exemption of $12.92 million,” said Bier. “That means 97% of Americans who pass away this year will not have to pay any federal estate tax. For the very fortunate 3% who would have to pay a federal estate tax, advanced planning can help minimize the 40% tax by removing assets from their estate and taking advantage of the unlimited marital deduction and generation-skipping tax exemption.”

And the IRS isn’t the only one in line.

“While many states do not have an estate tax like the federal system, the savvy will determine if their state has an estate tax and implement a plan to mitigate those taxes,” said Robert E. Kabacy, an estate planning lawyer with the firm Kell, Alterman & Runstein.

Do What the Wealthy Do: Put Your Trust in Trusts

So, how do the wealthy remove assets from their estate, avoid probate proceedings and capitalize on unlimited deductions?

“For most of our clients, a trust-based plan provides the most options and flexibility to pass on their wealth,” said Bier. “It avoids costly probate if the trust is properly funded and allows people to gift their assets to whom they want, when they want, and how they want to do so. When the trustor — the person who creates the trust — passes away, their trust can create new trusts for each beneficiary.”

Many kinds of trusts can be tailored for nearly any situation, but they all serve the same trio of purposes.

Make Your Money Work Better for You

“Trusts are the vehicle of choice for three reasons,” said John M. Jennings, president and chief strategist of St. Louis Trust & Family Office, a $15 billion wealth management firm, and an adjunct professor at the Washington University Olin School of Business’s Wealth and Asset Management graduate program. “One, they can shield the assets from estate tax liability for younger generations. Two, assets held in trust are protected from the beneficiaries’ creditors, including spouses in divorce, and three, trusts can shape how and when beneficiaries receive assets.”

Create a Succession Plan for Your Business Interests

Many wealthy people made their money in business, but it’s not the company’s responsibility to plan for its generational transfer of ownership.

“If the patriarch or matriarch owns a business and suddenly passes away, who will pick up the reins?” said Scott Yahraus, a professional fiduciary and president of Scott Yahraus & Associates, which supports business owners, trustees and conservators in these kinds of disputes. “It is imperative that there is a succession plan in place. The business owner should put everything in writing about what he or she wants to see occur after his or her death. The children may be too young or disinterested in running the business. Would an executive at the company purchase it or should the business be put up for sale? Who is the team to lead such a sale?”

When choosing a trustee, think like a businessperson.

Make Your Money Work Better for You

“Often, the trustee is the spouse,” said Yahraus. “This may be the wrong choice in leading the transition of the business. Often, professionals with experience are needed to try and sell the company.”

Be Real About Who Is on the Receiving End

Bier explained that trusts also provide mechanisms like inheritance, divorce, and asset protection to prevent less-sophisticated heirs from making unforced errors or simply blowing it all.

“Asset protection is valuable for those who have little life experience with money, drug or alcohol addiction or are otherwise not financially mature enough to manage a lottery-like windfall,” he said.

Jennings Agrees. “Few families want their children or grandchildren to receive a large lump sum of money all at once.”

Leave No Room for Squabbling Among Heirs

The grieving process and the estate-transfer process overlap, and they can bring out the best in surviving family members — or the worst.

“Conflict can arise among siblings when wealth is left in unequal shares,” said Bob Schneider, CFP, RICP and senior vice president at Johnson Financial, a $14 billion wealth management firm. “Especially if mom and dad do not clearly explain the reasons why they chose not to leave equal amounts.”

But even if the distribution is equal, the heirs might not want to share a particular asset.

“For instance, the family cabin or cottage is something families deal with quite often,” said Schneider. “Children who have moved out of state or across the country are unlikely to use the cottage as often as the children that have remained closer to home. Yet, all will be held responsible for maintaining the property.”

Make Your Money Work Better for You

The solution regarding the hypothetical cottage or anything else is to have frank conversations while you’re alive so you can make the right decisions and enshrine them in a trust.

“It is a best practice for mom and dad to find out who wants to share in the property and who doesn’t,” said Schneider. “And then use other assets to equalize what each child inherits.”

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