Wealth Management: Smart Strategies to Reduce Estate Taxes
Like tax planning, estate planning requires long-term planning and execution by your wealth management team. Over many years, wealth transfer and estate planning strategies may significantly reduce estate taxes and accomplish family objectives. Shorter timelines limit the results. There are as many estate planning strategies as estates, but we outlined a few here based on common objectives. As always, working with your financial advisor is key to crafting the right strategy for your situation.
Transferring Wealth to the Next Generation:
One of the best ways to transfer wealth to younger family members is to start early and take advantage of annual gift exclusions. You may transfer $17,000 or more to any individual each year without paying gift taxes. For married couples, each spouse can take advantage of the limit, enabling transfers of $34,000 per individual per year. Also, remember that private school tuition and college expenses paid to the school don’t count toward the limit. Altogether, that can add up substantially over many years when applied to multiple children and grandchildren. Additionally, stocks or other appreciating assets can be transferred so that they continue to grow with their new owner instead of creating estate tax down the road. However, assets transferred at death receive a significant tax break called a “step-up-in-basis,” meaning the lifetime investment gains are not taxed. You also need to watch out for generation skipping tax (GST) issues that may come up when grandchildren are involved. Analysis and planning by your financial advisor and tax team is required.
Life insurance is another way your Huntsville wealth management team may help reduce estate taxes. Life insurance proceeds pass outside of your estate; in other words, the proceeds are excluded from the calculation of your total assets since they belong to the beneficiaries. Your financial advisor can help you buy a policy during your lifetime, and the beneficiary can be your family or a trust.
Family limited partnerships may be another good wealth management strategy for some families. Assets, even liquid securities, may be placed inside a partnership structure. The entire partnership will be valued at a discount for tax planning purposes because it is not liquid itself, like a privately held company.
Philanthropic Giving to the Community:
Gifts to Huntsville based 501(c)3 organizations or national charities are exempt from estate taxes, just like they reduce income taxes during your lifetime. Gifts can be given outright to charities or through a variety of trust structures that your wealth advisors can help setup and manage for the long-term. Trusts often allow split giving, where perhaps a spouse may receive income from an asset during their lifetime with the remainder flowing to charity afterwards. There are many options to consider, your Huntsville financial advisor can help identify the right strategy for your situation.
Each of these strategies require thoughtful planning and execution, often over many years. Your wealth management team can help determine which options make sense for your situation. If you would like to speak with a professional financial advisor about your estate planning situation, schedule a call here and our team would be happy to discuss.