A good family wealth management plan ensures that you’re preserving your wealth for your generation and those generations that follow. A few items you’ll want to be sure to examine are planning your estate, saving for your children’s education, funding your own retirement, and charitable giving. All of the elements included in your personal wealth management plan will need to be balanced. Having a plan that covers all of the fundamental basics will steer you on a successful course.
Starting with the Basic Building Blocks
A good estate plan can help ensure that, in the event of your death, your children and even their children will be taken care of and, if your estate is large, that they won’t lose a substantial portion of their inheritances to estate taxes. It also guarantees that your assets will be passed along to your heirs according to your wishes and not according to the probate laws in your state.
Life insurance is an essential component of any plan. The right coverage can provide the liquidity needed to repay debts, support your children and others who depend on you financially, and pay estate taxes. As your situation changes over time (i.e. birth, death, separation, or divorce), it is important to revisit and update the list of beneficiaries you designated to prevent the payment of the death benefit to people you don't intend it to go to.
Preparing for Multiple Challenges at Once
Most families face two long-term wealth management challenges: funding retirement and paying for college education. While both issues require your attention, you should find a happy medium where you don’t sacrifice saving for your own retirement in order to finance your child’s education. Scholarships, grants, loans and work-study may help pay for college — but only you can fund your retirement.
The government has provided several education incentives that are worth checking out, including tax credits and deductions for qualifying expenses and tax-advantaged savings opportunities such as 529 plans and Education Savings Accounts (ESAs). Because of income limits and phaseouts, many higher-income families won’t benefit from some of these tax breaks. But, your children (or your parents, in the case of contributions made to an ESA) may be able to take advantage of the tax saving opportunities.
Gifting Can Be a Win-Win for Everyone
Giving money, investments or other assets to your children or other family members can save future income tax and be a sound estate planning strategy, as well. You can currently gift up to $14,000 per year per individual ($28,000 if married) without incurring gift tax or using your lifetime gift tax exemption. Depending on the number of children and grandchildren you have, and how many years you continue this gifting program, it can really add up.
By gifting assets that produce income or that you expect to appreciate, you not only remove assets from your taxable estate, but also shift income and future appreciation to people who may be in lower tax brackets.
Also consider using trusts to facilitate your gifting plan. The benefit of trusts is that they can ensure funds are used in the manner you intended and can protect the assets from your loved ones’ creditors.
Charitable Giving’s Place in Your Plan
Properly made gifts can avoid gift and estate taxes, while also possibly qualifying for an income tax deduction. Consider a charitable trust that allows you to give income-producing assets to charity, but keep the income for life — or for the charity to receive the earnings and the assets to later pass to your heirs.
Planning for your future and examining all of the aspects can be complex. To find out how you can balance your plan while incorporating all of the estate and trust components that will suit your needs best, contact your Untracht Early advisor.