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How to Transfer Wealth to the Next Generation

By Michael Nedreski

With an estimated $84 trillion (1) expected to be transferred from Baby Boomers to their heirs in the upcoming years, you may be one of those people wondering what the best strategy is to transfer your wealth to the next generation. Though it's possible to take steps on your own, meeting with a financial advisor can support a seamless transition, as they can guide you in ways to minimize taxes, facilitate charitable contributions, and ultimately create a lasting legacy you're proud of. 

To help you think through this process, the White Oak Wealth Partners team prepared 5 fundamental steps you need to be aware of regarding passing on your wealth to your loved ones.

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 $17,000 for 2023 ($18,000 for 2024) to a loved one before any gift taxes are incurred. (2) If you are splitting the gift with your spouse, you can give up to $34,000 combined for 2023 ($36,000 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 2023, the current lifetime exclusions are $12.92 million and $25.84 million for individuals and married couples, respectively (the number is raised for 2024 to $13.61 million each). (3) 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 2023, an individual can gift up to $85,000 and a married couple could gift up to $170,000 without incurring gift taxes! (The number increases to $90,000 in 2024 per individual). (4) 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 comes 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 is 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.

Work With an Experienced Professional 

At White Oak Wealth Partners, our goal is to offer guidance that aligns your financial goals with your values, enabling you to lead a more fulfilling life. We'd love the opportunity to connect and support you on the path to creating a lasting legacy for your loved ones. 

To get started, we invite you to contact us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or scheduling an appointment here.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. Mike and his team are continuously looking for innovative and proactive ways in which to serve their clients, acting as their independent wealth coach and personal CFO. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) conferred by College for Financial Planning and Life Underwriting Training Council Fellow (LUTCF) designations. Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.

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(1) Yahoo, 2023, October 30 

(2) IRS, 2023, November 22

(3) Kiplinger, 2023, December 4

(4) Saving for College, 2023, November 3