If you are a high-net-worth individual facing a significant estate tax bill at death, you have likely wondered what kind of wealth transfer techniques are available now to minimize your tax bill while also maximizing the assets that can be transferred to future generations. Additionally, you may question what assets are most suitable, and how to accomplish wealth transfer while also maintaining your current lifestyle – all key considerations. Fortunately, there are highly effective wealth transfer techniques that can reduce your tax bill and maximize asset transfer to beneficiaries without giving up the financial freedom you enjoy now.
Qualified retained interest trusts provide individuals an opportunity to transfer appreciating assets to the next generation with little to no gift or estate taxes. The most common of these trust types are grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs). Both are designed to freeze the value of the gifted asset(s) at the time of transfer, thereby removing any future appreciation from one’s estate, and efficiently transfer these assets to designated family members. The most beneficial aspect these trusts offer is the donor’s ability to retain an interest in these assets for the duration of the trust term – prior to the beneficiary’s obtaining ownership. GRAT’s, for example, provide an annuity stream to the donor throughout the trust term and are often set up with private or public stock holdings that have strong appreciation potential in the upcoming years. QPRT’s, on the other hand, are designed for the transfer of a personal residence or vacation home and allow the donor and respective family to occupy the home during the trust term. Both trusts successfully transfer ownership of assets while also reducing one’s taxable estate.
For individuals and families with estates that approach or exceed the current federal exemption, the need for proper gifting and wealth transfer tools is clear. The challenge arises when identifying what techniques are available and most suitable for one’s specific financial situation, including what assets are most appropriate for the intended recipients and most advantageous from an estate planning perspective. A close examination of one’s assets and strong understanding of their financial goals typically needs to take place to ensure the successful transfer of wealth to future generations.
Meeting with skilled financial advisors who understand the complexities of estate and wealth transfer planning can provide clients with customized solutions that are aligned with their financial goals. At Bordeaux Wealth Advisors, we prioritize a strong relationship and deep understanding of our clients and their objectives. In coordination with our clients’ estate attorneys, we model and illustrate wealth transfer solutions that may make sense for their family’s situation both financially and personally.
To learn more about estate planning and Bordeaux Wealth Advisors, visit www.bordeauxwealthadvisors.com or call 650-289-1105. We manage the complexities of wealth so you don’t have to.
Author: Lane P. Hustead, CFP®, CPA