Multigenerational Estate Planning – An estate plan affects you, your children, your grandchildren and even your parents. How can you use a multigenerational estate plan to help everyone meet their financial goals?
Research shows that about 60% of wealthy families exhaust the greater part of their estate by the second generation. By the third generation, nine of 10 family fortunes are mostly gone. The main culprit is estate tax; a levy can halve a family’s wealth.
Your estate plan should focus on the most tax-advantaged ways to pass along wealth. It behooves the younger generation to educate itself on potential windfalls and how to be prepared ahead of time.
Understand the ramifications of tax decisions on your trusts and other entities in order to take your personal tax situation into account. You want to manage taxes for the short and long terms.
One strategy is a donor-advised fund (DAF) in the family name. Bequests to a DAF avoid the 40% estate tax rate, allowing donors to save 40 cents for every dollar they give to charity. DAFs can be good options because they’re simpler and less expensive to establish than private foundations.
If your goal is to pass on your wealth, try naming younger generations as successor grant advisers for the DAF. Besides the tax benefits, this will impart the importance of charitable giving to the next generation. Being appointed to a DAF can serve as a teaching moment for your children and grandchildren on learning how to manage and distribute money from a charitable account.
In the process, you can create a philanthropic legacy over multiple generations, engaging your family and benefitting the causes your family supports. From a tax perspective, the charitable contribution deduction continues to provide significant tax savings. Philanthropic giving, though, is about more than tax savings.
Charitable planning not only manages income and estate taxes but also resolves personal concerns about transmitting family wealth and values. A multigenerational gift entirely structured by the senior generation is likely to fail; you can’t assume that family members will share your passions.
Engage your children in the process by encouraging them to use a portion of any financial gift received for birthdays, holidays or other events to support a charity that they care about. Encourage your children to think about their own causes and you will be creating a culture of giving, early on, that can extend through multiple generations.
DAFs can help ensure that your family’s charitable work continues in future generations. Families can appoint members to work with DAFs as advisers, collaborating on how funds are invested and granted to charities.
Community foundations are charities that often offer DAFs.
Some DAFs will allow donors to select their own investment adviser to manage the funds. Donors can contribute appreciated property, such as closely held stock, and receive a full fair market value deduction. DAFs, like private foundations, can accumulate assets and earn a return, tax-free, but they are not subject to many of the restrictions that apply to foundations.
By starting a DAF or endowing one during life, you can enjoy the benefits of a charitable deduction against income taxes today. By contributing non-cash assets, such as real estate, you can avoid incurring capital gains taxes.
DAFs are a good vehicle for donors to bunch deductions so that in some years they make such large gifts that they will be able to itemize deductions, while in other years, they will limit charitable gifts and take the standard deduction.
You can keep your charitable support working at a steady pace by making distributions from the DAF every year to the causes you support. While DAFs can be attractive for philanthropic families, they have some disadvantages:
- The donor and his or her family will be subject to the policies and procedures of the charity maintaining the fund, including its grant-making and investment policies.
- The opportunity to have family involved as advisers for multiple generations may vary from one DAF to the next.
To establish a long-term advisory vehicle, discuss the DAF’s policy in advance. Engage your family in the process and communicate regularly about what you hope to achieve through your DAF so it doesn’t become a document in the drawer. For more guidance and advice, consult with your estate planning counselor.
Did you enjoy reading, Multigenerational Estate Planning?
Interested in learning more about this subject? Attend our upcoming estate planning webinars!
Have You Properly Protected Your Loved Ones? (FREE Estate Planning Workshop), Trustee and Power of Attorney Training School Webinar, Medi-Cal Webinar, and/or Probate Webinar. Get registered today for our estate planning webinars!
This website is not intended to be a source of solicitation or legal advice. General information is made available for educational purposes only. The information on this blog is not an invitation for an attorney-client relationship, and website should not be used to substitute for obtaining legal advice from a licensed professional attorney in your state. Please call us at (626) 403-2292 if you wish to schedule an appointment for a legal consultation.
For more information about The Hayes Law Firm, visit our Google My Business page.
Thanks for reading, Multigenerational Estate Planning!
- Four Famous Probate Cases in History - April 13, 2023
- Wedding Bells, Again? - April 11, 2023
- Tackling Tough Health Decisions With a Health Care Proxy - April 10, 2023
Office hours
Map
The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.