Wealth Transfer Planning

When you’ve built your wealth, having a strategy to transfer your assets can ensure your legacy.

Intergenerational wealth transfer is poised to become one of the most important financial trends over the next 25 years, with $68 trillion expected to shift from older generations to younger heirs.^[i] But in order to achieve a proper transition, ensure your family’s wealth and confirm that your legacy remains intact for years to come, you should create a strategy that will minimize taxes and maximize the funds you gift.

What is a wealth transfer?

Transferring wealth involves passing along your estate to your heirs or other beneficiaries; well-planned transitions allow you to consider how much can be given and when, so all parties get the greatest benefit. Often life events can prompt these discussions, for example getting married, having children, or a marital separation. This process requires a plan to ensure you have wealth saving strategies in place and it gives your heirs guidance and support if questions arise.

Wealth transfer planning safeguards that tax implications are managed efficiently. Through this effort, you should educate your children or heirs, so they understand the assets being transitioned.

There are many questions to ask yourself in the wealth transfer planning process including:

• Whether you want to pass along part of your estate now or later?
• Do you need to plan for an upcoming life event?
• Do you want to give your children access to the funds?
• Do you want to prepare your estate in case something happens?

How you answer these questions will dictate some key decisions in developing your estate plan.

How to prepare for a wealth transfer

The planning process begins with three important steps.

1. Identify all aspects of your estate.While you probably have a decent idea about the size of your net worth and the various accounts that make up your total wealth, having the information readily available will give you a better starting point before beginning conversations with your family or an estate attorney. Having that level of detail also provides you with the information required to determine the right strategy for your individual needs. Your financial consultant can help with this process, bringing together any important items like jewelry, old retirement accounts, or long-forgotten investments.
2. Share your plans with your family. By giving your family insight into your strategy and plan, it gives them an ability to plan as well. This also gives you the opportunity to share with them your thoughts and to have a forthright conversation about the future. Through this discussion, you build an understanding of assets available and attainable goals so that you and your family can create both stronger relationships and financial plans.
3. Understand your options for passing along the estate. There are two common tactics: A will and a trust. In a will, you outline where your assets go once you pass. Wills avoid courts (in most cases), but it’s often not the most tax advantageous way to pass along money. Trusts provide control over the estate while you’re alive and can also offer protections from taxes after you’ve passed. They’re robust documents and have different structures, like revocable and irrevocable trusts. These structures can determine how much control you retain over your assets.

How to talk to your family about wealth planning

Talking to the family about what to do with your wealth is an important step. Throughout these conversations, you can learn about the goals and aspirations your heirs have and determine the best way your money can support them, now or in the future.

The conversations however, may not always be easy. With families, emotions and issues far beyond dollars and cents can impact the discussions. Having a financial consultant in place for these discussions can aid in circumventing some of the trickier financial questions that arise and answer some of the concerns that family members may have when it comes to the money, as well as act as a neutral third party with everyone’s best interests in mind. It’s about education, which provides your family with better insight into why you’re making the decisions you are.

A few key questions that can help this conversation, ensuring you understand their needs and to protect your own concerns, include:

• Are there needs for money now? If one family member has a particular need immediately, it can change your strategy.
• What are their goals for the future? It will give you a sense of how your money will be used moving forward, providing you with ideas on how to distribute assets.
• Are there any assets family members may have a particular affinity or desire for? Consider a piece of art or family heirloom you may need to plan around; know who has the strongest desire to manage the asset.
• Are there any assets that they don’t wish to continue maintaining? Flipping the question like this can help you and your family think about things in new ways and often provides insightful answers.
• If you own a business, you’ll need a succession plan. Will you pass the company down to the next generation or prepare to sell?
• Who do you trust to serve as executor and trustee? One person may serve multiple roles, but it’s important to set expectations with your chosen team to help them understand the responsibilities associated with each position. Equally important is setting up clear communication between the trustee, executor, and family to ease doubts in the future when assets are distributed.

Wealth transfer strategies

The strategies you use for wealth planning will depend on several variables, including the size of your estate, the different types of assets in the estate, and how soon you want to pass along funds, among other factors.

In situations where heirs need to access funds earlier than expected, you can gift $16,000 to every heir, each year without tax penalty. If you’re married, this gift tax exclusion allows couples to provide $32,000 ($16,000 each) a year to family members or friends without cutting into lifetime tax exemptions.^[ii]

Another option to begin giving the estate while alive? Through a trust. While this isn’t the only option, it allows you to reduce the amount of the estate that’s accounted for when you pass away. This is valuable for those individuals that have an estate above $12.06 million since anything beyond that mark would face the federal inheritance tax of 40%. (The amount is based on current rules, set to expire after 2025 and return to $5.49 million plus inflation, unless Congress renews the limit.^[iii]) You’ll have two options to create such a plan:

• Revocable trust: You can place assets in the trust, but you have control over how it’s used and spent. You can change it at any time. Upon death, the trust becomes an irrevocable trust, and no changes can be made.
• Irrevocable trust: You can place assets into the trust as a gift. For assets that appreciate, like a home, it freezes the appreciation reducing the amount of asset value stated upon death, which can limit taxes.^[iv]

A financial consultant can help you manage this process, along with the help of an estate attorney, tax advisor, and other professionals to build a design that works for your goals.

If you’re in the planning process, our experienced team of relationship bankers at Santander Bank and financial consultants at Santander Investment Services can help customize a wealth transfer plan for you.