Wealth Transfer Strategies for Effective Legacy Planning

Wealth Transfer Strategies for Effective Legacy Planning

By Scott D Abrahamson, CFP® and Chris Pawlowski, CFP®, CRPC®, APMA®

As they say, “You can’t take it with you.” So, have you thought about your legacy and where you want your wealth to go when you’re gone? After you pass away, your assets can end up in three places: taxes, charity, or passed down to your loved ones as an inheritance. For those facing high estate taxes, taking proactive steps now allows more of your wealth to go to your loved ones and charitable causes—and less to the government.

While it’s true that navigating the gifting process can be daunting, there are ways to streamline wealth transition to the next generation. Consider these steps for building your legacy plan to stand the test of time.

Make Direct Payments 

Simply making direct payments for your children or grandchildren’s expenses is one of the easiest ways to transfer your wealth without the hassle of taxes. Many institutions will allow you to pay your grandchildren’s tuition directly from your account. You can also conveniently take care of other important expenses, such as medical expenses, by automating payments to their healthcare provider.

When you make this sort of payment to an organization or institution, it helps you bypass the burden of gift tax, which can be a hefty price to pay on your assets. However, if you gift the money directly to the recipient, you might still be subject to gift taxes. 

Give Annual Gifts 

You could also decide to gift some of your assets to your loved ones. Giving gifts helps you reduce the taxable portion of your estate, and you can gift up to $18,000 (1) for 2024 to a loved one before you are required to file a gift tax return. If you are splitting the gift with your spouse, you can give up to $36,000 combined for 2024. To effectively transfer wealth to the next generation, you can ensure that you give the maximum amount every year. 

It’s worth noting that once you gift more than these limits, the excess amount spills into the “lifetime exclusion bucket.” You must use this entire amount before the IRS requires you to pay gift tax. For 2024, the current lifetime exclusions are $13.61 million and $27.22 million for individuals and married couples, respectively. (2) You will be required to file a gift tax form for any amounts that exceed the annual gifting limits, individually or jointly. This is how the IRS will track your lifetime exclusion amount.

Another great way to transfer wealth to your children and grandchildren is through the use of 529 college savings plans. There is a special provision that allows donors to contribute 5 years’ worth of gifts as a lump sum. This means for 2024, an individual can gift up to $90,000 and a married couple could gift up to $180,000 without incurring gift taxes! (3) The beneficiary can then withdraw the funds and the investment growth tax-free to pay for qualified education expenses.

Irrevocable Trusts 

Creating a trust is another way to transfer wealth to the next generation. To oversee the use of your assets, you can create a trust with specific guidelines for passing your wealth to beneficiaries. 

When your estate is significant, an irrevocable trust can come in quite handy. You transfer all your assets from your estate to your trust, thereby bypassing estate tax. Additionally, when you accrue income on the assets you hold in your trust, you are not personally responsible for paying taxes since the trust is considered a separate entity. As such, the trust will be taxed directly on any retained income and beneficiaries will be taxed on any distributions of income. This can be an effective wealth transfer strategy since beneficiaries are typically in lower tax brackets.

It’s also important to note that irrevocable trusts are permanently binding; you cannot change any of the terms nor beneficiaries. Once you have handed over your wealth to the trustees, they manage and transfer it according to your specific wishes. 

Consider the Gift of Time

I’m noticing more and more that it’s not as much about leaving money to your children as it is enjoying the fruits of your lifelong labors through quality time with them while you’re still alive. Experiences shared as a family will mean much more to your kids than a fancy car on their 16th birthday. Rather than safeguarding your wealth to be left after you’re gone, consider buying a vacation home where everyone can gather or taking your whole family on that dream trip to Paris. These experiences will produce lifelong memories that are likely more impactful than leaving them a larger inheritance.

Consult With a Wealth Advisor 

At SpringSource Wealth Advisors, we’re dedicated to offering personalized advice that aligns with your values, helping you make the most of life’s opportunities. Let’s chat about your goals and how you can create a meaningful legacy plan for your loved ones. We invite you to set up an in-person meeting today or call (503) 714-9531 or email scott@springsourcewealth.com to get in touch and begin your journey today. We look forward to speaking with you!

About Scott

Scott Abrahamson, CFP®, is Owner and Wealth Advisor at SpringSource Wealth Advisors, a fee-only fiduciary Wealth Advisor with a passion for simplifying the retirement planning process and bringing clients peace of mind. With their goals-based planning approach, SpringSource helps individuals, families, and small businesses make smart financial decisions towards living an abundant life. As an independent CERTIFIED FINANCIAL PLANNER™ professional with over 20 years’ experience, Scott’s mission is to empower clients to reach financial freedom through exceptional, caring service. He takes time to explore each client’s core values about money and partners with them to formulate clear goals based on those values. The result is a powerful, personalized road map designed to help each client successfully navigate every life phase. Scott loves watching clients experience a sense of peace and financial independence through smart financial planning over time.

Outside of the office, he enjoys playing and coaching sports, boating, outdoor activities, spending time with family, and serving in the community. To learn more about Scott, connect with him on LinkedIn.

About Chris

Chris Pawlowski, CFP®, is Wealth Advisor at SpringSource Wealth Advisors, a fee-only fiduciary Wealth Advisor with a passion for making the retirement planning process simple. With their goals-based planning approach, SpringSource helps individuals, families, and small businesses make smart financial decisions and realize the core value of their finances: living an abundant life. Since entering the financial planning industry in early 2013, Chris enjoys understanding his clients’ goals and working hard to formulate effective strategies for them. With the technical experience in the planning industry that puts him in a strong position to help clients through every life stage, Chris desires to empower families to reach financial freedom through exceptional, caring service.

As a Veteran who served in both the U.S. Army and the CA Air National Guard, Chris has a special passion for helping his brothers and sisters at arms in pursuing their financial goals. He holds the CFP®, Chartered Retirement Planning CounselorSM (CRPC®), and Accredited Portfolio Management AdvisorSM (APMA®) designations. Outside of the office, Chris devotes his time to his beautiful wife, Yvette, his church, and his hobbies, which include backpacking, kayaking, hiking, and enjoying time with his family and friends. He also partners with Hope World Wide, a faith-based charity organization in Portland, to serve local families in need. To learn more about Chris, connect with him on LinkedIn.

Information provided herein is provided by SpringSource Wealth Advisors, LLC. This information is for general informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information was compiled from third-party sources believed to be reliable and accurate but cannot be guaranteed. Investment advisory services are offered through Wellspring Advisors, Inc., an SEC Registered Investment Advisor. Neither SpringSource Wealth Advisors, LLC  nor Wellspring Advisors, Inc. render any legal, accounting, or tax advice. All investments involve risk, are not guaranteed, and may lose value. We recommend that all investors consult with a qualified adviser to assess your personal situation before implementing any strategy.

Please remember to contact your advisor when your financial circumstances or objectives change. Your advisor may recommend adjustments to your financial planning and investment strategies to better suit your current situation.

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(1) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024

(2) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024

(3) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024#:~:text=The%20annual%20exclusion%20for%20gifts,increased%20from%20%2415%2C950%20for%202023.