Estate Planning Strategies to Build Generational Wealth

Estate Planning Strategies to Build Generational Wealth

Preserving your wealth across generations takes understanding estate planning basics, incorporating tax minimization strategies, and working with an expert advisor.

Maintaining your wealth through the next generation and beyond may be one of your top financial planning priorities. Generational wealth planning helps ensure your estate and assets transfer and that your legacy is protected.  

Estate planning is one important component of legacy preservation and generational wealth management. It helps you establish which beneficiaries will receive what assets after you pass, and it factors in tax planning as well. 

Understanding the tools available to you and your family, alongside the right financial planning strategies, will help you establish a robust plan that aligns with your personal goals and family needs. Let’s dive into estate planning for generational wealth that will help with creating a robust plan that aligns with your personal goals and family needs.

The basics of estate planning

First up is getting to know each aspect of what to include in your estate plan. This list of terms and concepts will act as a foundation for your planning approach:

• Will: Creating a will should be one of your first steps. This document will designate an estate executor, outline who your beneficiaries are, and state who will inherit which assets.
• Trusts: Establishing a trust is key to maintaining generational wealth. It gives you control over how you want your assets to be distributed and helps you avoid estate taxes and probate.
• Tax minimization: Tax and estate planning go hand-in-hand. You want to take all necessary steps to help your beneficiaries avoid estate and inheritance taxes.
• Education savings: Consider your family’s educational goals and start a savings strategy like a 529 college savings plan which provides tax benefits.
• Philanthropic giving: Identify what you want your legacy to be as far as charitable giving. This helps you leave a lasting mark on the community and contribute to organizations you care about.
• Powers of attorney and healthcare directives: These legal documents let you designate a person or persons to make financial- and healthcare-related decisions on your behalf should you become unable to make such decisions.

These estate planning basics are important places to start when you’re ready to set up a strategy. They cover your bases and reevaluate your long-term generational goals. Keeping each component of your estate plan updated and aligned with your family’s needs should be an ongoing objective, which we’ll cover next. 

Tools and techniques for effective estate planning

As mentioned, creating a will should be your first step as it lets you outline broad goals and figure out your beneficiary priorities. It’s wise to work with an estate planning or legal expert to draft your will so all your concerns are addressed appropriately.

Setting up a power of attorney or health care directive now is important so you have someone you trust to help you if you become incapacitated. A power of attorney can step in on your behalf when a financial choice must be made, and a healthcare power of attorney will be able to make decisions about your healthcare.

Next, learn about your trust options so you select the type that works best for your goals. Here are a few to know:

• Living or revocable trusts: These trusts protect your assets from probate, and terms can be altered after they’re created, at any time. Assets can be distributed upon your death or you can decide to continue the trusts beyond that point.
• Irrevocable trusts: These trusts usually can’t be altered once they’re created. However, they are more protected from creditors and you can avoid more estate taxes with these trusts.
• Irrevocable life insurance trusts (ILITs): These trusts can’t be modified but they can be used when you want to pass down a family business or ensure your life insurance policy assets avoid estate taxes.
• Qualified personal residence trusts (QPRTs): QPRTs can be instrumental in ensuring your real estate investments pass down to your beneficiaries, and they also help you minimize estate taxes.

Trusts help you avoid overpaying on estate taxes which is another key concern when you’re figuring out your estate plan. Learn more about tax strategies next.

(H2) Tax considerations for wealth transfer

There are many tax implications with estate planning. There is a federal estate tax to worry about, also known as the death tax, but it only applies to estates over a certain threshold. In 2024, that threshold is $13.61 million for individual filers and $27.22 million for married couples. 

This was a slight increase from 2023, and it means that you are exempt if your estate is under these thresholds. If you are not exempt, this tax can be significant, between 18% and 40% depending on the estate’s value.

There’s also a gift tax that applies to transfers of assets as gifts. Gifts are taxable unless they’re given to a spouse, political organization, or educational or medical expenses. In 2024, you can give $18,000 per recipient without paying the gift tax. This means you can transfer that amount of money to a child or beneficiary while avoiding taxes, and this also reduces your taxable estate value.

Doing what you can to keep your estate value below the tax threshold as well as giving gifts below the threshold are great strategies for minimizing your estate’s tax burden and helping preserve your wealth for future generations.

Another tax minimization strategy is incorporating a 529 college savings plan. Your investments in this plan grow tax-free over the years, and beneficiaries can withdraw up to $10,000 annually to cover tuition costs. These withdrawals are also not taxed as long as they pay for the eligible education expenses.

The role of professional advisors in estate planning

You need a solid estate plan that will meet your family’s goals and protect the wealth you’ve built. Considering the right trust and tax minimization strategies will help you and your family find success prioritizing generational wealth.

One of the best steps you can take is to work with a financial advisor, tax professional, and/or estate attorney. These professionals understand all the implications of preparing your estate for transfer and setting up your beneficiaries for the future. Seeking advice can enhance your estate planning strategies and help you put best practices in place.

It’s never too early to start thinking about estate planning and generational wealth preservation. Work with the team at Avior for personalized, expert financial planning services to achieve your life’s purpose. Contact us today to get started.

Disclaimer: Nothing contained herein should be construed as legal or tax advice. Avior and our Advisors will work with your attorney and/or tax professional to assist with your legal and tax strategies. Please consult your attorney or tax professional with specific legal and/or tax questions. Investment Management and Financial Planner are offered through Avior Wealth Management, LLC, an SEC-registered investment advisor. Past performance is not a guarantee of future results.  Investments are subject to loss, including the loss of principal.