Once you’ve lived your life and accrued a significant amount of wealth, you’re probably thinking of what to do next. A lot of people want to see their children and grandchildren inherit their wealth in order for them to enjoy the same kind of luxuries that they did. A lot of states feature quite a few taxes that reduce the amount of money you can transfer through generations. Luckily, there are more than a few ways to get around this to ensure that your heirs will enjoy your hard-earned wealth.
If your estate is close to or just above the tax limit, you might want to take advantage of the annual gifting exclusion. Regular cash gifts have a yearly limit, but there is a way to get around this using a Section 529 college savings account.
These types of savings accounts are extremely useful because they allow parents and grandparents to contribute large sums of money to the account and exercise complete control over it. Contributions and investment decisions are all up to you until you are completely sure you want to give it to your children or grandchildren.
Using a Section 529 savings account gives you and the beneficiary a number of advantages. You can exclude a significant amount of money from your estate while still providing enough flexibility and concrete tax advantages to the funds that will go to your grandchildren. Even if they decide not to pursue higher education, you can change the beneficiary without any penalties.
Using a five-year gifting strategy, you can transfer a significant portion of your
wealth and assets to your grandchildren.
Depending on the size of your estate, you might have to employ different options. Estate tax limits can take quite a toll on your fortune. If your estate is too large, you might want to consider using a dynasty
trust to transfer funds indirectly.
The tax laws for dynasty trusts are pretty interesting. You can transfer a large portion of your wealth while skipping a set number of generations. Under current tax laws, this kind of trust allows you to escape estate and gift taxes for those generations. The number of generations you can skip vary depending on a couple of factors. The laws of the state you’re in play a big factor. Some states allow you to transfer your wealth to your great-great-grandchildren without much hassle, while others might still charge a kind of tax for setting up a trust for your grandchildren.
Dynasty trusts are a kind of irrevocable trust that provide a solid way to keep a lot of funds on hand for your family for as long as possible. Transfer taxes are basically non-existent using this method. You can fund them with cash, life insurance, or even business interests. If you use life insurance as a method to fund them, they come with some benefits. The cash values will grow tax-free and they can be used to buy policies for children and grandchildren.
By investing in something that is projected to grow in value over time, you will essentially give your heirs even more funds than if they simply inherited cash. Finding the right kind of investment can be tricky. For starters, it has to be something inheritable that gets minimally taxed. Even if it is taxed, it should be something that will significantly grow in value.
Real estate is one option that many people consider. By buying a large property you will ensure that your heirs have somewhere to live while also giving them an asset that will grow in value. There are a lot of other viable options you might be wondering about. You might be asking yourself:
are diamonds a good investment? Precious gems are considered a pretty good investment and you’ll find that they are pretty difficult to tax under most circumstances.
Cashing out on these investments becomes relatively easy, even for your future generations. They are usually considered safe assets that can be liquidated slowly, but surely.
Most people look at buying life insurance for themselves as a viable option, but you aren’t the only person that can take out this kind of insurance claim. The 401-Kaye strategy proposes a different method. Gifting your children money to buy health insurance is a perfectly legitimate way to transfer large amounts of wealth.
Life insurance offers the ability to free up incredible leverage opportunities. With a relatively small premium of up to a hundred thousand dollars, you can buy a million dollars or more in insurance. Not only are you getting additional funds, but you’re also removing money from your taxable estate. The additional benefit that goes with this is that you also get to improve your estate plan. There are very few ways to transfer wealth through generations that are as effective as life insurance.
Due to how complex income and tax codes are, transferring wealth through generations isn’t the easiest task. Certain laws exist in order to minimize the amount of money you can transfer. The good news is that if you have a bit of know-how, you can still give a significant amount of your wealth to future generations without losing too much to taxes. If you follow some of these pointers, there will be no question of whether or not your children and grandchildren can enjoy the full benefits of your estate.