Graduating from Wealth Building to Wealth Transfer (How to Pass it Along)



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GiftingFor many of our clients, a lifetime of professional success combined with diligent saving and investing can lead to an interesting and desirable problem; they have much more money than they need in order to enjoy a comfortable retirement.

This situation can create two concerns, the first is their desire to fully enjoy the fruits of their labor, rather than leaving a larger than intended estate behind for their heirs.  The second is the specter of a potentially large estate tax liability.  Under the current law, each individual has a (roughly) $5.5MM estate tax exemption, (or $11MM for a married couple).  Everything above the exemption will be subject to an estate tax of 40%, which is paid into the US Treasury.  This is not a desirable outcome for many folks, but is unavoidable without planning and forethought.

When families are faced with the happy realization that they have successfully accumulated more money than they will likely ever need, an important change of focus often occurs; they move from a “wealth building” mindset to an emphasis on “wealth transfer.”  Below are some common strategies our clients have used to address these issues and transfer their wealth to people and purposes that are important to them.

Giving to Family – For many, it is very gratifying to see for themselves, during their lifetime and ahead of schedule, the benefits their wealth can bestow on their kids and grandkids.  These gifts can be given gradually over time, or with large, one-time gifts.  Below are some common approaches to gifting to children and grandchildren:

Annual Exclusion Gifts – Many of our clients make gifts to their children taking advantage of the annual exclusion limit.  Under existing law, an individual can give up to $14,000 per year to anyone they like.  A couple can combine to give $28,000.  If your child is married, the same $28,000 gift can be given to their spouse, for a total of $56,000.  If you have multiple adult children, with spouses and children, these gifts can really add up.

Lifetime Exclusion Gifts – You are allowed to use any or all of your lifetime estate tax exclusion at any time before you die.  So if you wanted to give a very large gift to your kids, this would be non-taxable, so long as the total gifts you’ve given are less than your total individual lifetime exclusion of $5.5MM.  We’ve helped clients give large sums of cash to their kids, or even ownership interests in a family business, allowing children to receive the appreciation and income from the business going forward.

Pay Tuition or Medical Expenses – You are allowed to pay tuition costs and medical expenses for others in any amount.  So long as the payments are made directly to the institution providing the service, these are not considered gifts.  For example, many of our clients pay the tuition for their grandkids to attend private school, sparing their kids the burden of this expense.

Giving to Charity

Donate to Causes you Support – If there are charitable causes that are dear to you, you could consider increasing your support.  There is no limit to the amount you can give to charity, but the tax benefit may be limited depending on your income, so it is important to consult with your tax professional.

Donate to Causes your Kids Support – A great way to foster your kids’ philanthropic interests and advance their standing in the community is to support or co-support causes that are important to them.  For instance, if their church or your grandchildren’s school is conducting a capital campaign, giving on their behalf is a great way to give to their community while at the same time improving their profile.

Spend it!

If you find that you have much more than is required to satisfy your current retirement needs, you might want to consider spending more.  Are there dreams you’ve left unfulfilled, or expensive trips you’d like to take?  Have you always wanted a vacation home on the beach?  Perhaps it is time to consider these indulgences.  It is better to enjoy these things while you are still physically able than to wait and miss your opportunity.  As they say, “you can’t take it with you!”

There are many ways to begin to address the “high class” problem of having too much money.  The options mentioned above are just a sample of the many wealth transfer techniques you could consider.  Everyone has different needs and any gifting strategy should be considered in the context of your overall financial situation.  Even though there is a high likelihood that the current estate tax laws will change in the future, estate planning will continue to play an important role in a comprehensive financial plan.

If you’d like help evaluating your retirement needs, financial situation, or would like to consider ways to begin passing down your estate to people and purposes you care about the most, please give us a call.  We are happy to assist! ________________________________________________________________________

Horizon Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Horizon Wealth Advisors
Horizon Wealth Advisors is a Houston-based, privately owned, fee-only financial advisor established in 1999. Our mission is to develop long-term relationships with thoughtful, successful individuals, families, and organizations by supporting and assisting them in achieving their financial goals.

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