facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Five Estate Planning Strategies to Create Generational Wealth Thumbnail

Five Estate Planning Strategies to Create Generational Wealth

Five Estate Planning Strategies to Create Generational Wealth

Planning who will receive your money, property, and other assets when you die isn’t always fun. However, it’s crucial to create a solid estate plan if you want to provide for future generations and ensure the longevity of your wealth. Estate planning is not important exclusively to those with a high net worth. Still, high-net-worth individuals are more likely to be affected by estate taxes, inheritance taxes, and gift taxes, and they often adapt their estate-planning strategies to reduce these tax impacts.

File Your Last Will and Testament 

A will is a legal document that[MS1]  dictates what will happen to your assets after you die and who will be the guardian of any minor children or pets you leave behind. Ensuring your will is clear, comprehensive, and legally binding will reduce the chances of potential conflicts and help your loved ones avoid a fraught probate court process. Probate court is the public judicial proceeding that oversees the execution of a will, especially when the legitimacy of a will is contested, and ensures that assets are distributed according to your wishes are paid. The probate process can occur with or without a will, but filing a will can help ensure that assets are distributed according to your wishes and to avoid intestate, where the court distributes the assets to the deceased individual’s next of kin in accordance with state-specific laws of succession in the absence of a will. 

Create and Fund a Trust

Probate court can be time-consuming, costly, and emotionally taxing for grieving families, so many high-net-worth individuals plan to avoid probate court if possible. Those who want to avoid probate may benefit from establishing a trust to hold their assets and to dictate the circumstances of their distribution. Creating a trust allows a person to set the terms for when, how, and to whom their estate will be distributed and to appoint a third party or “trustee” to oversee this distribution. Assets held in a trust usually bypass probate court, which often means that beneficiaries receive the assets more efficiently, and the details are handled more privately than they would if it was carried out in a public court proceeding. 

There are several types of trusts, including revocable and nonrevocable trusts. Revocable living trusts can be changed or updated at any point during your life, and they typically become irrevocable at the time of your death; this allows you to maintain more control over your assets and add or remove beneficiaries as life circumstances change. An irrevocable trust cannot be changed after it is established, and the creator of the trust gives up control over the assets placed within it. This option is not the best fit for everyone, but it can benefit those who prioritize asset protection over flexibility. 

Reduce Estate Taxes Through Gifting

As of 2023, federal estate taxes top out at 40 percent, so a significant portion of estate planning strategies for high-net-worth individuals focus on reducing the effect of these taxes. One way to lower these taxes is by decreasing the overall value of your estate. A popular way to do this is by gradually gifting assets to your intended beneficiaries while you are still alive. Gift tax rates apply when you exceed the yearly limit per person ($17,000 as of 2023), but this strategy can put a dent in what you plan to leave behind after you pass and allow you the joy of seeing how some of that money is used and the blessings it potentially brings to your family. Similarly, you could decrease the effect of state taxes by contributing to a custodial or educational savings account for your children or grandchildren, such as a state-sponsored 529 college savings plan. 

Pass on Your Financial Knowledge and Values

If your goal is to create long-lasting generational wealth and to set your heirs up for financial and personal success, you will need to dedicate some of your efforts toward teaching your heirs the financial knowledge and skills that helped you accumulate wealth. It’s crucial to teach your children, grandchildren, and other beneficiaries how to manage the wealth you are leaving them. Moreover, it’s important to have discussions about the values you have concerning the best ways to use money. Is it important to you that your children are generous, hardworking, and resourceful? How do you want them to carry on your legacy? Having these conversations can bring you and your loved ones closer together and can give you peace of mind knowing that you and your beneficiaries are on the same page.

Work With a Professional 

People with simple estates, a clear idea of their goals in estate planning, and a good working knowledge of their state’s inheritance and estate taxes may find it easy to use online software to prepare their end-of-life arrangements. However, high-net-worth individuals and those with complex estates can benefit from working with a professional who can analyze their unique financial circumstances and needs. If you feel out of your depth and want guidance, consider meeting with an estate planning attorney or financial advisor.

The financial advisors at Business & Financial Strategies are experienced in helping their clients navigate the intricacies of estate planning so that their clients feel secure that their wishes will be carried out, and their families will not have to endure legal complications after their passing. Its financial advisors can provide personalized guidance to help you make wise estate-planning decisions that can reduce the financial and emotional toll on your loved ones after your death. When estate planning, it is important to work with someone familiar with the estate or inheritance laws in your state. Business & Financial Strategies has offices in the Iowa City/Coralville area and in Fairfield, Iowa, and it also serves clients throughout the United States. To learn more, call 319-358-7700, or visit www.BFSFinancialPlanning.com to schedule a complimentary 20- to 30-minute in-person or virtual initial conversation. 

Check the background of this firm/advisor on FINRA’s BrokerCheck.