A Guide to Wealth Transfer Planning

It may be an uncomfortable topic for many, but wealth transfer planning is an important aspect of estate planning and can be a vital component in protecting your legacy. Proper wealth transfer planning can help ensure that after your death, your assets go exactly where you intend, whether it is family, friends or a charitable organization. Proper planning can also help reduce potential conflict among family members and can help simplify the legal process required for probate. Below, we look at wealth transfer planning and discuss some techniques that can help make the process as seamless as possible.

What Is Wealth Transfer Planning?

Wealth transfer planning includes devising a strategy to transfer assets to heirs and other beneficiaries. Life insurance, estate planning, wills and trusts are all tools that can be used to help facilitate the process. Proper planning can help mitigate surprises if you or your spouse pass away unexpectedly. It can also help protect your assets and help ensure they are distributed according to your wishes.

Before you begin to implement your wealth transfer planning strategy, it is important to properly plan your own financial needs for the remainder of your life. This should include all of your expenses including healthcare, taxes and liability payments. Depending on your health and life expectancy, funding for these expenses may be needed for more than 30 years. Once you have planned to fund your expenses, you can begin to plan how you would like to distribute your assets after your death.

A good place to start will be to make a detailed list of the family members and others who will be a part of your plans. Next, it is important to consider what your objectives are when transferring your assets. This can include who will receive which assets and when. Confirm that your will and estate planning documents reflect your wishes, and consider setting up a trust if necessary. Are there any charitable causes that are important to you and your family? Do you want to help others with expenses like college funding for grandchildren? Who do you want to be in charge of making decisions if you are somehow incapacitated? Discussing your plan with family and loved ones can ensure everyone is on the same page and can help avoid uncomfortable surprises.

Make a detailed list of all of your assets and liabilities. This will include financial accounts, real estate, business interests and other assets as well as mortgages and other debts you have. Be sure your beneficiary designations reflect your current wishes. Consider meeting with an estate planning attorney and ensure all of your legal documents are in order. This can include your will, trust, power of attorney and several other supporting legal documents that will provide clear instructions in the event of your incapacity or death. Once your estate planning documents have been reviewed and signed, the plan can be implemented. Remember to store your documents in a safe place that your loved ones will have access to in the event of an emergency.

Once your plan is in place, it is a good idea to review it and go over the details with your family and loved ones. This is a personal decision, but it can help everyone better understand what your intentions are for your estate. You should review your estate planning documents at least every five to 10 years to ensure they continue to reflect your wishes.

Get assistance with your wealth transfer planning by booking a free consultation with one of our financial planners today.

wealth transfer planning

Understanding Wealth Transfer Tax

A major goal in wealth transfer planning is the transfer of assets in the most tax-efficient manner possible. Federal estate tax will apply to the transfer of property at death on the portion of the estate that exceeds $11.58 million (in 2020) for single individuals and $23.16 million (in 2020) for married couples. There is a 40% tax currently in place on estate assets that exceed that exemption level. There are unlimited deductions allowed for transfers to a surviving spouse, support of a minor child and to a charity.

There are also annual exclusions for gifting of up to $15,000 (in 2020) per spouse allowed each year that is granted separately for each recipient of a gift. For example, a married couple with four children can gift a total of $120,000 to the children ($15,000 from each parent to each child) each year and not owe taxes on the gifts. The gifts will not count toward the couple’s lifetime exemption.

The tax implications of gifting can be complicated, so it is always advisable to seek the guidance of a tax professional before taking any actions that may impact your tax situation.

What is the Best Way to Transfer Wealth?

Make a Direct Payment

You can make direct payments for medical and education expenses. For example, this is a great option for grandparents who want to help with college expenses for their grandchildren. Keep in mind the payments for these expenses must be made directly to a qualifying educational institution or medical provider.

Consider Annual Gifting

As mentioned above, an individual can gift up to $15,000 (in 2020) per year ($30,000 for married couples with $15,000 coming from each spouse) to as many people the individual (and/or spouse) desires. This $15,000 annual gift will not be subject to federal gift tax and will not count against the lifetime exemption.

Other Strategies

Other wealth transfer strategies include utilizing Roth IRAs, Grantor Retained Annuity Trust and life insurance. As a reminder, it is always a good idea to speak with a tax professional before making any tax-related decisions.

wealth transfer planning

Create a Wealth Transfer Plan

Wealth transfer planning is critical in ensuring your assets are distributed according to your wishes following your death. A financial planner can be a valuable resource in helping you navigate this complicated process and can help ensure you leave a lasting legacy for your loved ones. We have financial planners available to speak with you in the California Bay Area as well as Houston, Texas. Contact us today to see how we can help you make your wealth transfer plan.