How to Transfer Wealth Before and After Death


Most retirees want to give some of their wealth to their adult kids and or charities while they are living and the remainder to them after they die. There are ways to accomplish this accurately and with ease. Understanding the rules that may apply to their circumstances and following them carefully is important for estate planning and to minimize the amount of their tax liability.

Wealth retirees can give while they are living

1. Effective for 2015, an individual can annually give $14,000 to each of their adult kids or charities. A married couple can each contribute this amount, making their total annual gift $28,000. However, these are not tax-deductible. The recipient will not have to pay taxes on the amount. It is not considered taxable income.

2. Besides the $14,000 ($28,000 per married couple) of annual gifts retirees can give, they may also pay for their adult kids' educational tuitions and or medical bills. As an example, the expenses are over $25,000. The retiree can pay both without any tax liability as long as the funds are sent directly to the institution or to the medical facility. The funds cannot be given to your kids.

The $5.43 million gift tax exemption will be unaffected. Also, retirees that distribute a portion of their estate while they are living will decrease the amount of estate taxes paid at the time of their deaths.

Wealth transferred to retiree's adult kids after they die

1. A life insurance trust can pay inheritance taxes after death. It is a way to protect retirees' adult kids' financial life. Many of them work and receive incomes from their family owned business. When the parents die the kids may not have the funds to pay the inheritance tax unless they mortgage or sell it. Many times, taking out a new mortgage is an impossible option. If they receive an annual income, they will lose that if they have to sell.

2. Assets such as precious antiques, art and jewelry bought by retirees that are going to be transferred at time of death should be put in their kid's names when purchased. This way any appreciation in value will belong to them. Sometimes personal effects are left out of wills so that inheritance taxes will not have to be paid by their kids. Even though this is mainly done out of love, the problem becomes one of honesty. As executors or co-executors, the retiree is asking them to evade paying lawful taxes.

3. As retirees age, many have one of their kid's names put on their bank accounts. That kid thinks that it is solely his or her money at time of death. The true intention of the parent was to share the money equally between siblings. Document intentions so everyone will know what inheritance each will receive.

$59 trillion of wealth transferred by 2061

According to the Center on Wealth and Philanthropy, a report written at Boston College predicts that $59 trillion of wealth will be transferred from 93.6 million American estates between 2007 and 2061. The division of wealth concludes that 36 percent will be inherited by heirs and 6.3 percent will be left to charities. The amount of wealth that is given to charities while the donor is still alive is $20.6 trillion, a much higher amount than they will inherit.

Sources:

  • The Karp Law Firm, Florida Estate Planning Attorneys assist with estate tax planning, keeping assets in the family, http://www.karplaw.com/page/wealth-transfer-and-tax-planning

  • New Report Predicts U.S. Wealth Transfer of $59 Trillion, With $6.3 Trillion in Charitable Bequests, from 2007-­2061, http://www.pgdc.com/pgdc/new-report-predicts-us-wealth-transfer-59-trillion-63-trillion-charitable-bequests-2007-2061

  • The Globe and Mail, Mark Goodfield, Want the kids to inherit the house? Avoid these common tax mistakes

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