Ten Wealth Transfer Strategies

The new tax law paved the way for people to give away an unprecedented amount of money tax-free. Ten top strategies for doing so are below:

1. Simple Gifts. You can give up to $5 million tax-free.
2. Irrevocable Life Insurance Trusts. Using the new $5 million exemption to fund a trust that then pays life insurance premiums can create a multiplier effect.
3. Grantor Retained Annuity Trusts. Many people predicted that the new legislation would take away some of the benefits of GRATs. Thankfully, GRATs were left untouched and can still be used to transfer future appreciation of assets to children with minimal taxes.
4. Income Tax Payments. You can pay the income taxes for assets held in grantor trusts, making additional tax-free gifts to the beneficiaries.
5. Dynasty Trusts. Using the generous gift tax exemption to create a generation-skipping trust can shield assets and appreciation from estate taxes for many years.
6. Discounting Appreciated Assets. You can leverage your exclusion by discounting assets such as businesses, real estate, and family limited partnerships.
7. Qualified Personal Residence Trusts. With the higher gift tax exemption, you can get your residence off your balance sheet with fewer tax consequences.
8. Defective Grantor Trusts. By seeding a defective grantor trust and then selling assets to it in return for a note, gains in excess of the note’s interest rate grow tax-free.
9. Roth IRA Conversions. You can convert traditional IRAs to Roth IRAs while the top income tax rate is 35%, which is likely to increase in the future.
10. Annual Gifts. Don’t forget about tax-free annual gifts of $13,000, education expenses, and health-related expenses.

For more details on each of these strategies, see Elizabeth Harris, Top 10 Ways to Transfer Wealth, Worth, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.