In the realm of wealth management, there are many opinions on how to best handle heritage planning. The strategy you choose will depend on your interests, your family's needs, and the total amount of assets you hope to pass along. Here are three of the most popular wealth management strategies in use today:
Managing Gift Taxes
One of the most pressing elements of wealth management is transferring assets to children or grandchildren without paying more taxes than necessary. One of the easiest vehicles for doing this is an annuity trust that pays out to each beneficiary over time without triggering estate taxes. Annuity trusts may be overlapping or choreographed to pay out in a specific amount of time. By carefully balancing this tactic, it is possible to keep your beneficiaries from cutting deeply into the principal amount of the trust fund so that the total amount of wealth stays roughly the same through increases and as time passes. In general, this means allowing disbursements of 2-3% annually which should be below the interest rate that your account is earning.
Maximizing Charity
Charitable giving can also help you maximize your legacy while minimizing taxes. By setting up a charitable foundation or trust, you can transfer large amounts of wealth into a fund that pays a charity of your choice while you and your family members reap the benefits of tax deductions. Special stipulations in the tax code make it possible for charitable foundations to generate payouts and transfer wealth in the event of an unexpected death. This strategy provides numerous unseen benefits to your family members without burdening them with unexpected estate and gift taxes. It also allows you to build a strong legacy of philanthropy in your family.
Keeping the Family Business Running
Every year, we hear stories about family wealth being handed off to the next generation, only to watch it evaporate in a few short years. The most effective way to minimize this risk is to ensure that your wealth planning sessions include your beneficiaries. Keeping the money in the family by teaching your children how to manage wealth effectively is a key strategy. As a family, you can formulate plans to transfer money through loans and life settlements that will keep the money working inside the family, rather than outside. Whenever possible, all parties should make these decisions together to ensure that everyone understands their responsibilities and what to expect from the money. The more you talk about the family business and educate your heirs, this will empower them to manage the money going forward.
Wealth management takes significant time and research. Be sure that the strategy you choose will provide the greatest rewards to your family and to the causes you find most important. Always keep your family informed of what to expect so that they will understand how their decisions will impact the family wealth. This includes things like having more children and setting up new annuity trusts over time to accommodate the changing family structure. Setting up charitable funds early on helps ensure that your legacy lives on through the organizations you fund.
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