Insight on the advantages that come with gifting trust assets to your heirs
Are you hoping to leave assets to your grandchildren? While building your wealth offers many practical benefits throughout your life, many people also find great personal meaning in using the fruits of their hard work to support multiple future generations of their families.
If you’re ready to plan for transferring some of your assets to your grandkids after you pass, utilizing trusts is a beneficial way to do so. Gifting your grandchildren trusts can be an incredibly generous way to support them in the future and help ensure their financial needs will be met, but it comes with important benefits for you, too. Specifically, gifting assets to your grandchildren can reduce the size of your estate – and, therefore, the tax that will be due – once you’ve passed.
Below, we’ll dig into more details on some of the major advantages that come with gifting your grandchildren assets using trusts as your vehicle.
If you’re looking for tax efficiency, trusts are a fantastic option. Leaving your grandchildren trusts can be a very simple, yet powerful, tax-savings technique. In 2021, tax law allows you to gift up to $15,000 annually as an individual or $30,000 as a married couple. This gift tax exclusion means you won’t have to file a gift tax return with the IRS if you remain within these amounts. So, let’s say you have five grandchildren. You would be able to make annual deposits into trusts for each of them for a total of $150,000 in tax-free gifts each year. And with the current 40% estate tax rate, that could mean up to $60,000 in tax savings each year.
What’s more, any income earned by the trusts from your deposits will not be taxed to you. Rather, the trust itself pays the taxes. This means you’ll be able to deposit money tax-free and grow it without direct financial consequences.
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One of the major benefits of estate planning, in general, is that you get to exercise control over what happens to your assets once you’re gone. When it comes to trusts, a useful benefit of gifting your grandchildren assets in this way is that you’ll be able to control the assets of the trusts as the trustee of the accounts. So, even though your grandchildren own the assets, you’ll still have control over what type of investments to make.
You’ll also have control over deciding which type of trust to create, revocable or irrevocable. For a trust to be revocable, it means that the account can be altered, changed, or canceled by the trustee at any time. Irrevocable trusts are set in stone as soon as they’re established. Both types of accounts can be beneficial when leaving money to your grandchildren because you’ll have full say on setting the terms on how the money is to be used.
When you leave assets to your heirs in a document such as a Last Will and Testament, your family is required to go to Probate Court, which can be incredibly expensive and take considerable time. Since probate is a public process, anyone can see the size of your estate and what you’re gifting, too. By gifting your grandchildren trusts where they are clearly named as beneficiaries, you can ensure they’ll be able to avoid Probate Court and, therefore, save time and money while protecting the privacy of your family’s financial situation, too.
This can be beneficial in two ways. First, it shields your grandchildren from the potential of greedy or unscrupulous friends and acquaintances who may wish to take advantage. Second, it protects your grandchildren from creditors and potential fraudsters, too. If you value your family’s financial privacy, trusts are an excellent estate planning tool for gifting assets to your grandkids.
Choosing to leave assets to your grandchildren is a very personal decision and one that should be made thoughtfully after considering all your options. Not only will you need to plan for the types of assets you’ll leave, but you must be certain that gifting your money won’t jeopardize your own financial plans and security, too. If you’d like to create legacies for your grandkids, consider the many benefits that trusts offer both to you in the present and to your heirs in the future.
If you’d like to speak with a professional financial advisor about how to best leave legacies for your grandchildren or other heirs, please contact us today. At Andersen Wealth Management, we provide comprehensive financial planning services and use our expertise to help you accomplish your unique financial and life goals. We look forward to hearing from you!