Wealth Transfers – The Triangulation of Three Important Concepts

March 11, 2024

At a glance:

The main takeaway: There are generally three main reasons why high-net-worth individuals delay making a comprehensive wealth transfer plan; however, a properly constructed estate and gift plan, updated to react to life and market conditions, can help address the major concerns about making or updating an estate planning strategy.
Impact on your finances: A comprehensive wealth transfer and tax minimization strategy can help ensure that the bulk of your assets will be passed down to your heirs and beneficiaries.
Next steps: Aprio’s Estate Planning team can guide you through the complexities of estate tax and wealth transfers and will equip you with a plan that provides for your surviving spouse, children, and grandchildren.

Are you ready to learn more? Schedule a consultation with our team.

The full story:

Are you constantly being encouraged by your professional team to give away more of your wealth to your children and their descendants while you’re still living?

Does your estate advisor or CPA remind you that the current estate tax exemptions of approximately $13 million per taxpayer are scheduled to automatically drop to $7 million in January 2026 (assuming no future law changes)?

If you’re thinking about waiting until the fourth quarter of 2025 to reach out to your estate advisor about reviewing your estate plan, you should think twice. Over the next two years, your estate advisor will likely be very busy, and it’s unclear whether technology will advance enough for individuals to safely rely on an AI-generated trust document.

There will always be a variety of reasons used to avoid addressing wealth planning issues and strategies early and often. However, the most common factors that weigh heavily on any meaningful wealth transfer strategy are tied to the three questions below:

How much will it bother me if my family has to pay millions of dollars in estate taxes?
How much of my net worth do I want to leave to my children?
How worried or nervous am I that I will run out of money during my lifetime?

While there are other factors for consideration, such as asset protection, step-up in basis at death, charitable planning, and increasing overall consumption spending, for this article we will focus on the questions above.

Paying Estate Taxes

For some high-net-worth taxpayers, not paying estate taxes is the overarching, primary, and most important motive for wealth transfer planning. For these taxpayers, not paying estate tax is more of a priority than a fear of running out of money and having to rely on family for support – many of whom would be recipients of wealth transfers.

However, estate tax avoidance as the sole reason for a wealth transfer plan can open up a high-net-worth individual or family to other factors that may work against the ultimate goal of passing on the greatest possible amount to their heirs. While that seems counter-intuitive, it is sometimes true.

Why do I love my grandchildren more than I love my children?

There are quite a few cute quips that usually follow this question:

“Because my children are my enemy and their children are the enemy of their parents, so any enemy of an enemy must be my friend.”
“Because I can spoil them, feed them ice cream, and candy and then call their parents to come pick them up.”

This question is a great ice breaker for a discussion about what parents really want to leave their heirs. It helps to identify the clients’ priorities. While most people want the vast majority of their wealth to go to their family, there are some people who favor leaving a large bequest to charity and others who are so wealthy that they believe that too much inheritance might demotivate their children and grandchildren. For the purpose of this article, let us assume that most people want to leave 100% of their wealth to their children and grandchildren.

To realistically accomplish this goal, it requires careful planning and understanding of the impact on your gross estate and the way it would be taxed, depending on your lifestyle, gifting, and overall wealth transfer strategies. Frequently, that will involve transferring cash or other assets to your heirs prior to your death to bring down the value of the gross estate while at the same time providing funds to your heirs and would-be beneficiaries.

How worried or nervous are you about the idea of running out of money?

What if we live way beyond what is considered conventional life expectancy? The Center for Disease Control, which annually collects and publishes data on life expectancy in the U.S., estimates that the average life expectancy in 2022 was 76.4 years, with women having a longer average life span than men. Obviously, because this is an average, some folks live longer than others, and many high-net-worth individuals have resources available to them that are not as readily accessible to others, which can contribute to longer life. These statistics about life expectancy become integral to any wealth transfer plan; should you spend and transfer your money based on an anticipated life span of 76 years? What if you end up living until age 86? Or age 96? Will your wealth transfer plan leave you with enough liquidity to maintain your desired lifestyle while still meeting your goals of passing wealth to your heirs?

If the fear of running out of money is the biggest impediment to wealth transfer planning, then that fear probably should be the biggest reason that everyone should have a thorough and comprehensive financial plan developed.

The bottom line

Aprio’s experienced advisors can help explain the complex estate tax laws and recommend strategies for minimizing tax, retaining sufficient funds to maintain the lifestyle you’ve earned, and ensure that the greatest percentage of your wealth is passed down to your heirs.