Legacy Planning

New York residents who are in possession of a significant amount of wealth have some great responsibilities, and some great opportunities. Accumulating wealth is challenging, but it can be just as challenging to keep these assets in the family over a number of generations. This is where legacy wealth planning in New York becomes important.

What is legacy wealth planning? In a general sense it is the process of positioning assets in a manner that allows them to stay intact and perhaps even grow over a number of generations.

Your first thought would be that this is quite simple. Assets properly invested are going to appreciate. Plus, each generation will have an opportunity to add to the family fortune. As assets are passed on from generation to generation there is no particular reason why the sum total should decrease.

This may be a logical line of thinking if death taxes did not exist.

In the United States we have a federal estate tax that carries a 40 percent maximum rate. This tax is unified with the federal gift tax, and this levy carries the same top rate. As a result, you cannot give away assets while you’re living in an effort to avoid the estate tax. This has been true since 1924 when the gift tax was first implemented.

The estate tax was first enacted in 1916. Subsequently, John D. Rockefeller gave much of his wealth to his son before he passed away to avoid the estate tax. You have to think that he was not alone among wealthy individuals at the time. The gift tax was enacted to close this window of opportunity.

At the present time the amount of the federal estate tax exclusion is $5.25 million. If you do nothing to position your assets in a tax efficient manner anything that you try to pass along that exceeds this amount is subject to the federal estate tax and its 40 percent maximum rate. New York State also has an estate tax- it charges a tax on an estate that is greater than $1,000,000. In determining whether your estate is greater than or less than the exemption amount, the government includes everything you own, including the value of your life insurance policies and the value of your home.

Legacy wealth planning is going to involve the implementation of estate tax efficiency strategies. These strategies will mitigate your estate tax exposure.

Legal devices that are utilized to this end would include charitable lead annuity trusts, generation-skipping or dynasty trusts, family limited partnerships, grantor retained annuity trusts, qualified personal residence trusts, and asset protection trusts.

Reacting to the estate tax is certainly a large part of what legacy wealth planning is all about, but this is just part of the equation. You may want to consider the proclivities and personal circumstances of the people who are going to be receiving inheritances from you. Those who are not good money handlers, minors, and people with disabilities can all be provided for in the appropriate fashion.

This is just a brief look at legacy wealth planning. If you would like to learn more, contact our firm to request a free consultation.