Have a Question about Combining Wealth Transfer Strategies?

You’ve heard all of your options…now learn how to find the right combination of wealth transfer strategies for your family.


Examine your needs


With all of the strategies available for generational wealth transfer, it can be easy to get lost in the crowd. Should you use trusts? Life insurance? Philanthropy? Direct gifts? All of the above? It’s important to take time to consider not only what will work best with your finances, but also what strategies will best safeguard your wealth based on your family’s non-financial characteristics.


Different strategies will work better for different scenarios, depending on where you want your money to go and when you want it to get there. Philanthropy may play a larger role in your wealth transfer if your family has a strong connection to a certain charity or has placed a large emphasis on volunteer work. Intentionally defective grantor trusts are a useful option for transferring wealth to grandchildren or more remote descendants, as they allow for a larger pool of tax-free money to be passed to beneficiaries. Irrevocable life insurance trusts will be a better option for someone with a shorter time horizon, as they may not have as much time to reduce his or her estate through grantor retained annuity trusts or direct gifts. Unitrusts may be a better option for someone who does not need a steady income and wants the opportunity to possibly gain larger returns from trust appreciation. Each of these non-financial considerations should be considered when choosing wealth transfer strategies.


Combine strategies


Of course, you don’t need to put all of your wealth into just one transfer strategy. For example, you might consider using philanthropy in conjunction with direct gifts to ensure that both your family and your charitable interests receive the wealth that they deserve. If you want to use grantor retained annuity trusts (GRATs) to pass on wealth but are worried about a shortened time horizon, you might combine a GRAT with an irrevocable life insurance trust so that you know your family will receive money from life insurance even if the GRAT fails. Your financial advisor can help you to determine which strategies make up the right combination for you, and can explain the complexities that factor into combining strategies in this way.


…but consider the dangers of complexity


With so many tools at your disposal, it’s easy to get caught up in designing the most complex plan possible. After all, if you have the most sophisticated plan, shouldn’t it have the least likelihood of failure? Maybe you choose to use several types of trusts, plus you donate some wealth to philanthropy right away, plus you leave some money in a charitable trust in your will, plus you pass down through direct gifts, plus you have wealth tied up in a variety of assets. The benefits of using complex techniques may seem attractive during planning, but it can be very hard to visualize how they will all work (or not work) together. You should consider that the more complex your plan, the more expenses it will require and the more opportunities there are for problems based on probability alone. For example, moving money in and out of trusts or investments can be costly, especially if you find yourself in a situation where you need cash quickly. Having more trusts will also mean paying more money for the investment and care of these trusts. That’s not to say you should do away with complex planning altogether, but it’s important to make sure that the extra returns gained from this complexity are large enough to outweigh these potential negative factors.


Finding the balance


By keeping in close communication with both your financial advisor and your family, you can find the right balance of strategies for your wealth transfer plan. If complexity and depth is what you want, just be sure to stay organized and stay on top of all the parts of your plan to be sure that your wealth is being transferred effectively. If you want to use only one or two strategies, make sure they are effective enough to handle the scope of your wealth transfer. By tailoring your strategies to your family’s wants and needs, you can create a uniquely personalized wealth transfer plan.   

Combining Wealth Transfer Strategies 

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