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How to Transfer Wealth to the Next Generation

By Jake Withnell, CFP® 

Do you want to leave a lasting legacy that spans generations to come? If you’re like most of our clients, the answer is a resounding yes! And while this is a noble goal to have, transferring wealth to the next generation can come with its own set of challenges. For example, you might be protecting your assets in the best possible way now, but what happens after it’s transferred? How much could you lose to taxes? Your estate may be protected when it’s in your hands, but will that continue once in your heir’s possession? 

It’s a complicated process, but there are ways to keep it simple while leaving a legacy you can be proud of. Below, we explore ways to transfer wealth to the next generation.

Make Direct Payments 

Simply making direct payments for your children or grandchildren’s expenses is one of the easiest ways to transfer your wealth without the hassle of taxes. Many institutions will allow you to pay your grandchildren’s tuition directly from your account. You can also conveniently take care of other important expenses, such as medical expenses, by automating payments to their healthcare provider.

When you make this sort of payment to an organization or institution, it helps you bypass the burden of gift tax, which can be a hefty price to pay on your assets. However, if you gift the money directly to the recipient, you might still be subject to gift taxes. 

Give Annual Gifts 

You could also decide to gift some of your assets to your loved ones. Giving gifts helps you reduce the taxed portion of your estate, and you can gift up to $15,000 (1) per year to a loved one before any gift taxes are incurred. If you are splitting the gift with your spouse, you can give up to $30,000 combined. To effectively transfer wealth to the next generation, you can ensure that you give the maximum amount every year. 

It’s worth noting that once you gift more than $15,000 (or $30,000 if gift-splitting), the excess amount spills into the “lifetime exclusion bucket.” You must use this entire amount before the IRS requires you to pay gift tax. For 2021, the current lifetime exclusion is $11.7 million for individuals and $23.4 million for couples. (2) You will be required to file a gift tax form for any amounts that exceed the annual gifting limits of $15,000 individually or $30,000 jointly. This is how the IRS will track your lifetime exclusion amount.

Another great way to transfer wealth to your children and grandchildren is through the use of 529 college savings plans. There is a special provision that allows donors to contribute 5 years’ worth of gifts as a lump sum. This means an individual can gift up to $75,000 and a married couple could gift up to $150,000, without incurring gift taxes! (3) The beneficiary can then withdraw the funds and the investment growth, tax-free to pay for qualified education expenses.

Irrevocable Trusts 

Creating a trust is another way to transfer wealth to the next generation. To oversee the use of your assets, you can create a trust with specific guidelines for passing your wealth to beneficiaries. 

When your estate is significant, an irrevocable trust comes in quite handy. You transfer all your assets from your estate to your trust, thereby bypassing estate tax. Additionally, when you accrue income on the assets you hold in your trust, you are not personally responsible for paying taxes since the trust is considered a separate entity. As such, the trust will be taxed directly on any retained income and beneficiaries will be taxed on any distributions of income. This is an effective wealth transfer strategy since beneficiaries are typically in lower tax brackets.

It’s also important to note that irrevocable trusts are permanently binding; you cannot change any of the terms nor beneficiaries. Once you have handed over your wealth to the trustees, they manage and transfer it according to your specific wishes. 

Consult With a Wealth Advisor 

At JGP Wealth Management, we have ample experience in managing family legacies and estate planning, and we would love to help you leave a lasting legacy. Reach out to me at 503-446-6450, email jwithnell@jgpwealth.com, or schedule an introductory phone call online.

About Jake

Jake Withnell is a financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. Jake is known for going the extra mile for his clients and for his passion for working tirelessly to help his clients find solutions to their financial concerns so they can confidently live out the life they want. He prioritizes listening and understanding as the foundation of his relationships with his clients, and his highest hope is that they can spend more of their time and energy on their passions knowing he is watching over their financial future. Jake specializes in serving business owners, Nike executives, and retirees, and plays a key role in JGP’s portfolio management process, building and analyzing financial models, and conducting client cash flow analyses. 

Jake graduated from Eastern Washington University with a bachelor’s degree in professional accounting and finance. He is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER® (CFP®) professional. Jake’s claim to fame is his time playing tight end for the Eastern Washington University Eagles, all while earning four-time Big Sky Conference First Team All-Academic honors! Jake values giving back to his community and does this by volunteering with the Children’s Cancer Association, Family Building Blocks, and New Avenues for Youth. In his free time, Jake takes advantage of the many outdoor activities the Northwest has to offer, such as trail running, mountain biking, and hiking. He loves traveling and spending long weekends at his family beach house in Seaside, OR. To learn more about Jake, connect with him on LinkedIn. You can also watch his latest webinar, 6 Ways to Maximize Your Nike Employee Benefits


(1) https://smartasset.com/retirement/gift-tax-limits

(2) https://www.forbes.com/sites/ashleaebeling/2020/10/26/irs-announces-higher-estate-and-gift-tax-limits-for-2021/?sh=32c356a9459e

(3) https://www.investopedia.com/articles/personal-finance/010616/529-plan-contribution-limits-2016.asp