money passing to generationsIn Part One of this article, we explored why bad markets and even a recession offer some unique and powerful estate and wealth protection planning opportunities.

Just click here to review that one when you’re done.

And it must have hit home because many of you asked us what else you should consider (and what other techniques might be helpful).

We listen, so here are six more ideas for transferring and protecting wealth in bad economic times…

Here are six more ways to make tax-advantaged gifts to benefit your family members and friends:

·      Use an annual exclusion gift to pay all or part of your child/children or grandchildren’s mortgage or higher interest debt.  When done right, current law provides that you, and your spouse, may give up to $34,000 as an annual exclusion gift to any or all of your children and/or grandchildren. The recipient pays no income taxes on the gift, and the gift doesn’t use up any of your lifetime gift tax exemption (now $12,920,000). Better yet, you can do this each and every year. This is best used in conjunction with a program, lesson or lessons to the next generation on how that beneficiary can maximize the benefit and/or avoid higher interest debt in the future.

·      Give your less wealthy parent or parents (if they are less wealthy than you –typically with an estate smaller than five or six million dollars) some amount of assets worth less than his or her generation-skipping transfer (GST) tax exemption. Your parent bequeaths the property to trusts for your children (his or her grandchildren) either during lifetime or at his or her death, the GST tax exemption (also now $12,920,000) shelters the gift. This preserves your own exemption for gifts to your own grandchildren.

·      Donate appreciated stock to a charity or even your own “donor advised fund” (created through a Community Foundation or a commercial entity such as Vanguard, UBS, etc.).  Don’t sell the stock first and then use the proceeds to make a cash contribution because you’ll trigger the capital gains tax. By making your donation of appreciated stock directly to the 501(c) (3) or donor advised fund instead, you avoid capital gains when your stock has been held for over one year.  Plus, the charitable contribution may be taken as an itemized deduction on your income tax return. Be sure to consult your income tax adviser.

·      Open a custodial Roth IRA account for your child or a grandchild.  You may contribute to a custodial Roth IRA account when your minor child or grandchild has earned income during the year. Income includes cash earned from babysitting, mowing a neighbor’s lawn, or even providing services to your business. Such contributions are limited to the amount of income earned by the child and may not exceed $6,500 for tax year 2023.

The Roth IRA grows tax-free during the child’s lifetime (and at the time of withdraw) and teaches your child or grandchild the value of planning for the future, and the power of compounding in a tax free environment.

·      Create a Spousal Lifetime Access Trust (SLAT) for your spouse. Your spouse may serve as trustee and make distributions to himself or herself and to your kids, if they are also included as beneficiaries. Benefits from the SLAT are also indirectly available to you, the grantor. For example, distributions to your spouse from the SLAT may be used by him or her to cover your joint household costs, mortgage payments, vacation expenses, or car payments. These are expenses you might have otherwise paid directly if the assets transferred to the trust had still been held in your own name.

·      Make “low” interest loans to allow children to create new business that serve your clients, customers, or niche buyers/customer rather than build new profit centers within your existing business.  If you have an existing business, or you’re considering creation of a new business that you’d own, consider allowing and helping the next generation to build that business in a new entity.  There are ways to assist in this process without triggering gifts or taxes, and in this way all of the growth associated with the new enterprise occurs outside of your estate and possibly in an asset protected environment (if it’s combined with the right kinds of trusts).

If you enjoyed this article, be sure to also click here to read part one if you have not already.  Feel free to download our available reports and resources: click here to go right to our page.

Also, most of the techniques described will require tax and estate planning strategic advice and documents.  David M. Frees III and our team at UTBF is available to help you to evaluate these techniques and, when advisable, to implement them.

Call 610-933-8069 to set up a consultation with one of our attorneys.

David M. Frees, III
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Attorney, Speaker and Author
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