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Strategies for building generational wealth

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Federal and state estate taxation can be a significant barrier to building generational wealth. Michael Cyrs, director of wealth strategy, Savant Wealth Management said, “Paying estate taxes is optional. Good planning can eliminate the estate tax.”

Almost everyone can benefit by having an estate plan, reducing the uncertainties over the administration of a probate, maximize the value of the estate, reducing estate taxes and expenses, and building generational wealth. In 2021, the Federal Estate, Gift and Generation Skipping Tax Exemption is $11.7 million per person, with estate tax imposed on the amount of the estate’s value exceeding the exemption level. The increased exemption is scheduled to “sunset” on Dec. 31, 2025, reverting to the prior exemption of $5 million, when adjusted for CPI increases would be approximately $6 million in 2026. However, the Biden administration has proposed reducing the Exemption earlier.

Basic documents

Basic estate planning documents including last wills and testaments and revocable living trusts should be in place to facilitate the transfer of wealth to charitable interests and heirs at the death of an estate owner. For estate owners desiring to build generational wealth, these documents should include provisions that allow and encourage heirs to preserve estate assets.

Annual gift exclusion

The Annual Gift Exclusion allows every person to give each recipient up to $15,000 annually with no federal gift tax consequences. Additionally, you can make direct payments for an individual’s medical and tuition expenses. These gifts can be leveraged by gifting assets that will appreciate, i.e., growth stocks, real estate and family-owned business interests. Or, by paying premiums on life insurance to produce a much larger benefit at the death of an estate owner. An Irrevocable Life Insurance Trust can be used to manage the gifts and proceeds as a relatively simple way to provide liquidity for estate settlement expenses, allowing assets to remain intact and enhancing generational wealth.

Advanced strategies

Following are several advanced estate planning strategies, for transferring wealth, requiring legal expertise that should be carefully explored with qualified financial, estate and tax planning advisors.

1. With a Qualified Personal Residence Trust, an estate owner transfers a personal residence to a trust and retains the right to reside in the residence for a term of years, i.e., 10 years. When the term ends, the residence passes to your beneficiaries and any increase in value between the time you transfer the property to the trust, will not be counted for estate tax purposes.

2. A Grantor Retained Annuity Trust is a type of irrevocable trust that is used to minimize estate taxes and allows an estate owner to transfer assets to a trust while retaining the right to receive income for a period of years. When the term expires, the remaining assets are transferred to the beneficiaries.

3. A Charitable Lead Trust is also a type of irrevocable trust that pays a charitable beneficiary for a set amount of time. After this period expires, the remaining assets are paid to the beneficiaries. Potential income tax deductions for charitable donations, estate and gift tax savings are provided.

Ben Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” Will Rogers got it right when he said, “The difference between death and taxes is death doesn’t get worse every time Congress meets.”

Kevin Kingston, CLU, is managing director and financial adviser at Savant Wealth Management; savantwealth.com