Establish your legacy

If your financial plan indicates that you have more than necessary for a lifetime of financial independence, your wealth can be used now to create your legacy. A legacy plan should address the following.

Based on how you built your wealth and your personal values and beliefs, how should your legacy assets be used?

Who should benefit from the legacy assets, and when?

How do you ensure your wealth is used only by the people you care about (and not creditors, predators and divorcing spouses)?

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Understanding Wealth Transfer

The United States has a unified estate and gift tax system that taxes certain bequests made during your lifetime, after you pass away or that skip generations. There are some basic tools that allow some gratuitous transfers to be tax-free, including: 

  1. You can give anyone up to $15,000 annually (the annual exclusion) without the imposition of gift tax.
  2. You can transfer up to $11,400,000 (the “unified credit”) collectively and cumulatively, during life or at death, without the imposition of transfer tax.

Both the annual exclusion and the unified credit are subject to annual indexing, and on December 31, 2025, the unified credit is scheduled to be cut in half.  The consequence is that the tax-free giving power for those with a net worth in excess of $5,700,000 will be dramatically reduced.

Exceptions

In addition to the annual gift exclusion and unified credit, there are other tax exceptions for wealth transfer.

Marital Transfers

Make transfers to your spouse free of transfer taxes.

Charitable Transfers

Make transfers to charities free of transfer taxes, and if made during your lifetime, you receive income tax advantages as well. If you donate certain appreciated assets (like stock), you can deduct the entire value while avoiding any capital gains.

Educational or Medical Expenses

Pay the tuition or healthcare expenses free of transfer taxes.

Protecting Family Wealth

Trusts can be designed to mimic ownership while protecting assets from creditors, predators or divorce.

Dynasty Trust

  • A long-term trust created to pass assets across generations while protecting the beneficiaries from any future transfer taxes and creditors.

Grantor Retained Annuity Trusts (GRATs)

  • An irrevocable trust designed to allow you to protect future appreciation of property from transfer taxes.

Spousal Lifetime Access Trusts (SLATs)

  • An irrevocable trust established by one spouse to benefit the other. The goal is to retain spousal access while removing the trust property from the estate.

Charitable Planning

Tell a story of philanthropy and share your passion while making a social impact. 

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Example of Charitable Planning

In a particularly strong earning year, you might want to receive a substantial charitable deduction, but may not have identified sufficient charities or charitable causes.

Or, you might decide you want to leave a substantial charitable bequest to eliminate the transfer tax, but would prefer that property have a long-term impact.

These timing challenges are effectively solved by establishing a donor-advised fund or private foundation to facilitate your charitable legacy.

Effective blending of personal enjoyment, tax benefits and philanthropy can be accomplished by creating charitable lead trusts and charitable remainder trusts.

Charitable Planning Strategies

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Donor-Advised Funds

Allows donors to make an irrevocable charitable contribution, receive an immediate deduction and direct grants from the fund over time.

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Private Foundations

A charitable organization established by an individual or a family that supports the family’s charitable activities. Foundations allow families more control than donor-advised funds at a higher initial and annual cost.

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Charitable Lead Trusts

These trusts are generally designed to blend a plan of legacy and charity. They provide payments to charities for a period of time, and then transfer the remaining property to family. These trusts are generally used to reduce transfer taxes.

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Charitable Remainder Trusts

These trusts are generally designed to blend personal enjoyment with charity. The donor typically retains the right to income for a period of time, and then the remaining property is left to charity. Charitable remainder trusts are usually used to defer income taxes.

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This website may contain concepts that have legal, accounting, tax, and investment implications. It is not intended to provide legal, accounting, or tax advice and is not a recommendation to buy or sell any investment.

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Jill Spielmann
Jill Spielmann, SVP Wealth Team Lead, Milwaukee, WI

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