4 Safe Ways to Transfer Multigenerational Wealth to Family

Leaving money to your family can be a complicated process that involves much careful consideration and planning. In order to ensure that the wealth you've accumulated over the years is transferred in a secure and safe manner, it’s important to understand the different methods to do so and how each can affect your estate and your loved ones' financial futures. Here are 4 safe ways to transfer multigenerational wealth to your family.

1. Trusts

Trusts are typically one of the most secure ways to transfer wealth between generations, as they provide control over who receives what and when. Trusts can also help protect assets from creditors or claims by third parties. Estate planning is another useful tool for ensuring that your hard-earned money is distributed according to your wishes when you pass away. Most estate plans often involve setting up trusts and other legal entities, such as limited liability companies, which can help reduce taxes on assets passed down from generation to generation.

2. Tax-Efficient Gifting

Tax-efficient gifting can be another way to safeguard your money while transferring it safely between family members. Gifting assets such as stocks, bonds, or real estate before death allows you to still enjoy their value while taking advantage of tax exemptions available under certain circumstances. Gift tax laws limit the amount of money or property an individual can give away without incurring gift taxes or filing a gift tax return; however, these laws vary from state to state, so it’s important to consult with an experienced financial planner, accountant, or lawyer regarding any gifts you wish to make during your lifetime.

3. Beneficiary Designations

Beneficiary designations are essential for protecting wealth within families as they allow individuals to name who should receive their assets upon death without having those assets go through probate court. This ensures that asset distributions occur quickly and efficiently without having them tied up in court proceedings for months or even years on end. Some designated beneficiaries may even be able to take advantage of additional income tax benefits depending on their status as an heir or beneficiary of an estate plan.

4. 529 Accounts

Finally, one of the most popular ways for transferring multigenerational wealth is via 529 accounts. These savings plans allow families to save for qualifying education expenses with special tax advantages built-in – including tax-deferred growth when earnings are used for qualified educational purposes – making them a great way for parents, grandparents, and other family members who want to fund tuition payments for relatives but don't want large sums of money sitting around otherwise un-invested. 529 plan funds are not limited to college expenses; you can also use the funds towards vocational institutions, and up to $10,000 annually can be put towards tuition payments for elementary, middle, or high school. Some states also offer additional incentives such as matching contributions or tuition discounts if you invest in a 529 plan within their borders.  

Final Points

Transferring multigenerational wealth doesn't have to be complicated or stressful if done correctly with attentive planning. Understanding the various wealth transfer strategies available – along with being mindful of the costs associated with certain methods, such as leveraging an estate attorney, and the maximum funding limits for gifting and various accounts – will help ensure that your funds get to where they need to be safely and securely, all while providing the peace of mind that everything will be taken care of according to your wishes.

Disclosure: The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.