Preserving Generational Wealth Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides.

Welcome to today’s Savant live webinar. Thank you so much for joining us today. We’re going to be discussing preserving generational wealth. My name is Alaina Davalos and I am a wealth transfer adviser here at Savant Wealth Management. And joining me today is financial advisor Evan Kuykendall. Thanks Alaina. I’m glad to be here. I think this topic is an important one to address and a lot of people may be thinking about the tax implications, how to gift effectively and what we teach the next generation. So hopefully we can help you start to think about some of these things today as we start to discuss. And while we won’t be emailing copies of today’s PowerPoint out, we will be taking questions at the end. So, please leave those questions in the Q&A box at the bottom of your screen. Also, all registrants will receive a copy of today’s webinar in their email over the next couple of days. So, please be on the lookout for that. And with that, let’s begin. So, Evan and I were very excited to present on this subject because it’s a really buzzy topic. You know, everyone is talking about generational wealth and this great wealth transfer that’s about to happen. So, we figured why not give you some pointers to help you participate in this movement as intelligently and tax efficiently as you can. So, what is generational wealth? Technically, it’s wealth that’s being passed down at your death, generally to your descendants or heirs. However, generational wealth is also a concept that hits home to a lot of families because it represents their legacies and their life success. You know, it represents this idea that you worked hard during your life, that you’ll be remembered by your grandkids for years and years to come because of this financial gift that you’re giving them. You know, this is the epitome of success in America. And just a quick overview of our conversation today. You know, we’re going to start by talking about estate planning and that because that’s one of the best tools out there to safeguard your legacy for those future generations. We’ll then move on to talking about lifetime gifting. So, as well as some ways to maximize the amounts you can pass to future generations by making some savvy tax decisions. Lastly, we’ll finish with a discussion on passing down not just money and assets, but also the knowledge that comes with managing great wealth, as well as some tips on how to preserve the integrity of the funds you’re passing down without creating the notorious trust fund baby.

All right, let’s delve into some of those estate planning tools that you can use to help preserve your wealth for future generations. And just a reminder, you know, estate planning is based on state law. So, while we’re talking about some general concepts today, make sure you work with a local qualified attorney in your state of residence if you want to implement any of these ideas into your estate plan. Now, Evan might disagree with this statement, but I’m going to say it. Estate planning is the best tool that you have to preserve your wealth for not just your children and your grandchildren, but as far down your family tree as your bloodline will go. If it’s right for your family and your set of circumstances, an estate plan that establishes trusts for your descendants is the best way to preserve generational wealth. The sort of trust I’m going to be talking about today is sometimes referred to as a descendants’ trust or a cascading trust because once you put assets into the trust either during lifetime or at death, the assets will stay in trust for cascading generations. So first your kids, then your grandkids and so on. Another term that you may be more familiar with is a trust fund. So that’s right. That’s what we’re going to be talking about is how to create trust funds for your kids. A lot of times these trusts get a bad reputation because they’re seen as only for really wealthy people or as controlling assets from the grave. This is a phrase or a concern that I usually try to avoid because it has a really negative connotation. You know, no one wants to be labeled as a control freak. But hear me out. If a trust works for your family, you can protect assets for a possible unlimited amount of generation from divorce, creditors, and possible estate taxes. How long the trust lasts depends on state law. It can range from 90 years to an unlimited number of years, and most states are only getting more and more flexible with their trust laws. So why doesn’t everyone do this? Why do we only associate trust funds with the wealthy? You know, that’s a question I get from a lot of clients when we start talking about these descendants’ trust, you know, and for starters, a trust can be more complicated to both set up and administer. These trusts are often established under your will or revocable living trust. So those core parts of your estate plan you will have more decision making you have to do if you’re incorporating these cascading trust you know you have to pick a trustee you have to pick distribution terms for the trust meaning when income and principle can be distributed out of the trust and you have to pick how long the trust is going to last. But on the flip side, you can leave your legacy, the assets that you’ve worked so hard for to your descendants in this protected vehicle that can protect that wealth from divorce, creditors, and those possible future estate taxes. I tell our clients all the time, you know, these descendants trust can with good management and not too many family branches spawning off lasts for centuries. I don’t want to get too bogged down in trust formation because it’s such an advanced topic in and of itself, but I will give you a quick overview. You name a trustee to manage the trust fund on behalf of the beneficiary. You can give your trustee as much or as little guidance control from the grave as you feel comfortable with. If you do decide to set up trust for your descendants, like I said, they’re most oftentimes created under your will or revocable trust and then they are only effective at your death. That means those documents and the decisions that you make at them can usually be changed at any time during your lifetime. These trusts that are created under the will or created under the revocable trust, these are called testamentary trusts like your last will in testament and they become irrevocable upon your death. That irrevocability is what gives these trusts so much of their power. So always keep that in mind. Your other option in your estate plan to a trust is of course to make outright distributions to your beneficiaries. You know, this is an easier plan. I won’t lie and say it’s not. You know, you say in your will, I leave 50% of my estate to my son, 50% to my daughter outright free of trust. You name both your son and your daughter as 50% beneficiaries on your 401k and life insurance. Easy peasy. The downside to this outright gifting is that once those inherited assets are freely gifted to your children, to your beneficiaries, they have no asset protection. Your daughter can go and spend her entire inheritance on a Lamborghini, which is what my four-year-old would do, and leave nothing to your grandchildren. Your son could co-mingle his assets with his wife’s and when she leaves him in the divorce and takes all of his money, nothing is left for your grandchildren. Once you’re gone, the money could very easily be gone. Outright gifts typically do not lead to generational wealth.

So no matter what sort of estate plan you create, one of the best ways to preserve that generational wealth is to not lose it at your death. We all know the horror stories of friends, you know, our own families, celebrities that when someone passed away without a good estate plan, it created a lot of tension between family members. Sometimes that tension gets so bad someone will go to court. And let me tell you, once lawyers, lawyer myself and the court get involved, things can get really expensive. And all those funds, your lifetime savings, your legacy can quickly be eaten away by legal and court fees. When I’ve seen an estate plan gone wrong, most oftentimes it was because the assets were coordinated in a way that they shouldn’t have been. Spouses didn’t own property as joint tenants with rights to survivorship, meaning they had to probate the will. Some people never updated the beneficiaries of their 401k after divorce, like my father, and an old spouse received that asset instead of the kids. You know, there’s a lot of issues that can come up with different types of assets. Honestly, the best place to start to avoid this scenario is to have a good net worth statement and make sure every asset you have is coordinated in terms of your overall plan. You know, take a good look at where all of your assets are located and then work with your professional advisors to determine how they’re going to pass at your death. I will say having moved out of private practice and now working with a wealth management company, the information that’s available to a good financial advisor is so instrumental in helping to set up a good estate plan because we take that net worth statement and we go down asset by asset and say, “Hey, has this been accounted for? How is this fitting in in terms of your overall plan?” Getting organized like that not only helps to avoid expensive issues at your death, but if you’ve taken my previous advice and included descendants trusts in your estate plan, you’ve got to make sure that all of those assets are or all of those trusts are fully funded. Meaning all of the assets or at least the ones you pick from your net worth statement are pouring into those testamentary trust at your death and that can take a lot of coordination.

So I usually tell clients that getting their estate planning documents drafted is step one. Once you have your will, powers of attorney, possibly a revocable living trust, once you have all of those documents signed, you’ve then got to move on to step two, which is aligning your beneficiaries. Again, when you’ve got that good net worth statement, you’re in a lot better position to get this done. A lot of people assume that their will controls everything, but that is not the case. A beneficiary designation on your 401k will overrule what’s written in your will, even if that’s not what you intended. Or let’s say you loan your daughter money for her first home purchase. Unless that agreement is in writing, there’s no guarantee that your daughter will pay your estate back for the money that she borrowed. Lots of these little inconsistencies can lead to outright gifts that you didn’t intend or unfunded descendant’s trust. So let’s say again you went and did what I suggested and you incorporated those descendants trusts into your wills. Now what? Well, step two, let’s make sure that any assets not covered by your will still pass to the descendant’s trust. beneficiaries of your life insurance trust, your kids outright. Nope. Get a new beneficiary designation form and change that to the trust created under your will for your kids’ benefit. Personal residence that you own as joint tenants with rights of survivorship with your second spouse? Nope. because that piece of property would pass directly to that new spouse instead of under your new will, which again you may not have intended. With a descendant’s trust, you can generally put any asset into that trust. That transfer happens at your death. Some just take more coordination than others. You know, there is one exception, a pretty big one for a lot of people, and that is qualified accounts. So your 401ks, your IAS, qualified accounts have special rules because of their special income tax treatment during your lifetime. And Evan can confirm we could spend hours going through the different income tax ramifications of naming certain beneficiaries on your qualified accounts, which includes those 401ks, 403bs, and all sorts of IAS. When naming a beneficiary of a qualified account, you’ve got the same options as you do with any other assets outright or in trust. You can name a trust as a beneficiary of a qualified account. The trust has to qualify as a see-through trust, meaning you have to be able to look at the trust terms and see who the beneficiary is. If the trusts ever fail to qualify for any of these terms that I’m about to talk about, that just means most likely they will be subject to the 5-year rule for income tax versus the 10-year rule for income tax. Meaning the beneficiary would have 5 years as opposed to 10 years to take out all of the assets from that account, pay the income tax, and pretty much convert it to a regular qualified account. I’m sorry, to a regular brokerage account. So once you’ve got a trust that qualifies as a see-through trust, the trust also must specify what happens to the RMDs of that account. RMD stands for required minimum distribution, which is the amount that must be distributed out of that account after the initial account holder turns 73 and a half. The trust must specify whether the RMD is distributed outright to the trust beneficiary called a conduit trust or whether the RMD is held in trust for the beneficiary’s benefit that’s called an accumulation trust. The type of trust and different provisions in it will determine how long the qualified account can remain qualified after the death of the decedent. Meaning, are you going to qualify for 5 years before it has to be converted into that brokerage account? Are you going to qualify for 10 years? Again, this is one of the more complicated aspects of estate planning. And often times you may have to decide between tax efficiency, you know, getting the best income tax outcome versus asset protection. You know, protecting your assets and creating that generational wealth because sometimes you can only get one or the other. A trust may create that generational wealth and offer that asset protection, but your beneficiaries may end up paying more in income taxes. There’s a lot of balancing that comes with qualified accounts and trusts. So, make sure you work with a qualified professional who is familiar with these concepts and can help guide you in that decision making.

I have a few more notes on trust funds that I want to go over quick before I hand the mic metaphorically back over to Evan. And the first thing is going to be picking your trustee. So there’s this theory about the three generational rule of wealth that refers to the common belief that most wealth accumulated by the first generation of a family, let’s say you, is often gone by the time the third generation inherits, so your grandkids or your great grandkids. So, if you leave a fund, a trust fund for your kids, by the time it gets to your grandchildren, it’ll be gone either through mismanagement or too many branches of your family tree. You know, there’s a few reasons. One step that you can take to avoid that issue is to put some good thought into who you name as the trustee of the trust fund. So, let’s go through your options. You know, the first is going to be an individual or a family member trustee. With the right distribution provisions, this trustee can even be a beneficiary of the trust. You could create a trust for your son’s benefit and name your son as trustee, provided that he’s limited to the health, education, maintenance, and support standard of distribution. That’s the hem standard. This is the easiest option because you know your son, you hope you’ve instilled enough financial wisdom in him to manage this trust fund well. And that usually works for the current generations because you know them. You know your kids. You maybe even know your grandkids. Are they financially mature enough to not only understand what they’re doing financially, but also to understand the significance and the opportunity that you’ve gifted to them. In some cases, you may never want a beneficiary to be the trustee of the trust. For example, if you have a child with addiction issues, you know, they’re not going to make a good trustee. You know exactly what they’re going to do with that money as soon as you’re gone. Another scenario where a beneficiary of the trust does not usually make a good trustee is with a blended family. You may create a trust for your spouse who is not the parent of your children. so that you can take care of your spouse during their lifetime and that whatever funds are left after that point go to your kids. If you name your spouse as trustee and give them full access to income and principal, it could be very easy for them to drain the trust, leaving nothing for your bids. Usually in those situations, a third-party trustee such as a friend or sibling is better. You do also have the corporate trustee option. You know, corporate trustees are great because they will preserve that trust fund for future generations and they’ll make pretty conservative distributions. However, corporate trustees do typically charge a fee for their services. So, that’s not always worthwhile, especially if you’ve got a smaller trust. Another option, a good option that you have is to have co-trustees. You know, let’s say you do have a child with an addiction and they will never, as far as you are currently aware, be at a point where they can manage their own trust. You could name that child as a co-trustee with a sibling that they respect and trust. You know, that way you always have you always know there’s going to be a security blanket there to make sure that the trust fund isn’t being spent on the wrong things.

Lastly, the other major decision that you’ll have to make if you incorporate these trusts is when can assets come out of the trust, when can this money be spent on your beneficiaries, and how? For what reasons? You have full control over that. You know, as long as it’s not unethical or against public policy, you can dictate all of the terms of the trust. You know, when I was in private practice, I was a big supporter of trusting your trustee. What that means is giving them the max amount of flexibility over your trust or your trustee to make distributions. I would often advise that an independent trustee, meaning someone who isn’t benefiting from the trust, could make distributions of principle and income for the best interests of the beneficiary. That’s another distribution standard, best interest. An interested trustee, which is a trustee who is also a beneficiary of the trust, could make distributions for health, education, maintenance, and support. Again, that HEM standard, that standard is the IRS standard, which gives the trust assets protection from those federal state taxes, which we’ll talk about more in a minute. And also, you can give as much binding guidance as you want to your trustee. You know, health, education, maintenance, and support, those are very beneficiary specific. What my maintenance costs are could be different than Evan’s, for example. What you could do instead is you could say, “Hey trustee, distribute $2,000 a month to the beneficiary starting when they turn age 25. When they turn age 30, they can get $3,000 a month, something like that.” I’m personally not so fond of strict distribution schedules like that because while $2,000 is a lot right now, you know, it could be pennies a hundred years from now. Your trust could be earning $10,000 a month, but your beneficiary only gets two. So now the trust is paying at a higher income tax rate. That may not be the result that you wanted. You know, if you’re comfortable, trust your trustee. Let them figure out principal and income distributions. Again, taking into account what we just talked about how important it is in choosing a good trustee. The other thing that you can do is to provide non legally binding guidance. My trustee may do this. My trustee may do that. I request but do not require that my trustee make a distribution for my beneficiary’s first wedding. I want my trustee to encourage my beneficiary to sustain their own lifestyle without relying on the trust. Language like that. guidance not binding. Now, one last word of advice. Let your trustee know either in a separate writing or by having a conversation how you would want the trust fund to be spent. If you want your beneficiary to travel the world and live their best lives, tell your trustee that. Tell them to support that lifestyle. If you’re more interested in preserving generational wealth, you know, creating this safety net for many generations of your descendants, again, tell your trustee that. Let them know that’s your preference. Those conversations, those words coming directly from you will go a lot further than handing your trustee a 60-page trust that contains a bunch of legal terms. So, I have done a lot of talking about estate planning now and trust funds. I think it’s time for Evan to talk to us a little bit about lifetime gifting. Thanks, Alaina. Yeah. So, let’s talk about lifetime gifting from an income tax perspective. I think a great place to start is with a simple question. Why are you thinking about gifting in the first place? Is it about leaving a legacy for your family or community? Or is it more important for you to make an impact now with your time and money? Another one of the common questions I get is, “Do I have enough money to live on for the rest of my life if I gift this way?” And my answer always is, “It depends.” There’s no quick formula or one-sizefits-all answer for this question. There are a number of personal and financial factors that come into play, such as what are your other personal goals outside of gifting? When do you want to retire? If you’re gifting to charity, how much do you want to leave to your heirs? You know, do you subscribe with a die with zero mindset, or do you want to pass on more of this wealth? Are there potential medical expenses in your family that could require a large, unexpected outflow of cash? You know, these are not simple yes or no questions. That’s why one of the best ways to gain clarity is by speaking with a financial adviser. While no one can predict the future perfectly, we can help you walk through the right exercises and scenarios to make a confident informed decision. Another common issue our clients run into is gifting now or gifting with warm hands versus leaving an inheritance. You know, firstly, we always like to say that planning drives strategy or that your financial plan dictates your investment strategy. This will be most likely different for people of all stages of life. So someone that is 25 will have vastly different needs and risk tolerances than someone that’s in their 60s. Gifting with warm hands can allow heirs to implement their own financial plans sooner. So I want to take the emotion out of this for a second and let’s dig into some numbers on your screen. Here’s a simple example involving two families. Both want to set aside $500,000 to their children. Family A decides to gift the $500,000 now and family B chooses to hold on to it and gift it later, say in 20 years as part of their estate. Now, here’s where the numbers come into play. The child in family A has the ability to invest the gift into a 100% stock portfolio, something that’s more aligned with their risk tolerances, while family B keeps the money in their own 60% stock portfolio until the money is passed on. After 20 years assuming average returns, family A’s child could end up with around $500,000 more than family B’s just from the power of early investing and a more aggressive asset allocation. So in this scenario, yes, gifting earlier does look better mathematically, but we all know this money decisions aren’t only based on the math. You also need to think about is your child financially ready. Are you concerned about spoiling them like Alaina talked about? Will this affect their drive and work ethic throughout their working career? And do you want to contra retain control of this money during your own lifetime? There’s going to be no universal answer for this. It all comes down to your personal values. So, I’d say have a conversation with your spouse. Talk through what feels right for your family. And remember, your financial adviser is there to guide you through both the numbers and the emotions behind these type of decisions.

You know, now that we’ve walked through the priorities when gifting and the timing of gifting, let’s turn our attention to how we actually gift. I like to start off by saying at a 30,000 ft view, there’s three different places your money can go. It can be spent, so that’s living needs, debt obligations, or variable expenses. It can go towards growth. So that’s investments, saving, or growth via gifting to family, friends, or charity. Or if it doesn’t go to the first two, it’s going to go to the tax man, aka taxes. Using these vehicles, we can help lower over our overall tax liability while still hitting our goals of gifting. You know, many of these vehicles seem very complicated at first glance, but once you understand how they work, you’ll see the benefit of using them instead of gifting outright cash. So, let’s take a look at a couple ways of doing that.

I think one of the most common vehicles that we use for gifting is the donor advise fund or the DAFF for short. The DAFF acts like a private foundation where contributions are tax deductible upfront. You maintain control of distributions to the charities, meaning that you can gift the assets within the donor advise fund at any time now or in the future. The donor advise fund allows you to gift appreciated stock or stock with large taxable gains into it and then relieve yourself from paying the capital gains if you otherwise had sold those. So, we tend to see many people gift shares of Meta or Google that they’ve had for over 20 years. They’re able to hit their goals of gifting to the charities while also side stepping the tax burden. We think that donor advice funds are a great vehicle for gifting to those organizations, but this is not going to be a vehicle that’s used to gift to family or friends. The distributions from the donor advise fund must go to an IRS qualified 501c3 organization. Lastly, we can lump some multiple years of contributions into one year to help you itemize your deductions. So, let’s take a look at a visual to better understand how the donor advise funding actually works. So, on your on your screen, you can see here you can donate cash, stock, bonds, crypto, business interest, and other assets into the donor advise fund. get an immediate tax deduction upfront and then grant that money to a 501c3 charity any time during the future. Note that you do not have to pick just one charity and stick with it. You can donate to as many charities as you would like. The donor advise fund is a great place to start gifting when you sell a business or maybe in high income tax years. Now, one thing to note, the One Big Beautiful Bill did change gifting for itemized taxpayers slightly. There is now a 0.5% floor on deductions for charitable contributions. So, what does that mean? This means if your AGI is a hund a million dollars for example in 2026 the first $5,000 of charitable contributions whether directly contributed or directly or contributed to a donor advise fund will not be deductible. So let’s move on to another way to gift tax efficiently. You can also gift stock without the use of a donor advice fund to a qualified charitable organization. It allows the taxpayers to avoid paying long-term capital gains rates on low basis investments just without the use of the donor advise fund. The deduction is subject to a 30% AGI limitation. So an aggregate gross income limitation. So for example, if your AGI is $100,000, the max stock donation deduction you can take for that year would be 30,000. So let’s take a look at an example of this.

In this example, we own ABC stock that has had record returns. The fair market value is $50,000 and the cost basis is $5,000. Federal long-term capital gains rates are 15% and our personal tax rate is 24%. In this scenario, we have two options. Option one would be to sell ABC, pay the capital gains from the sale of $6,750, and then donate those proceeds. In this scenario, because we sold the stock and had to pay the capital gains, we only saved $3,600 bucks or so. Or we can go with option two, which is to contribute the ABC stock directly to that charity. In this scenario, we donate the stock, so we never actually sell it. This allows us to bypass the capital gains that we would have otherwise paid and save $12,000 in taxes. Donating these highly appreciated assets can be a very powerful tool when we’re doing charitable planning. Lastly, let’s take a look at a way to give from your IRA.

So, like Alaina said before, the IRS requires individuals that have IAS to start distributing some of these IRA assets each year, usually starting at age 73. This is called an RMD or required minimum distribution. A qualified charitable distribution or a QCD is an excellent strategy for people with larger IRAs that are planning on gifting. You can gift up to 110,000 per year if you’re over the age 70 and a half. Note that this is not the same age as when someone would start taking RMDs. The amount donated through a QCD is excluded from taxable income which can help lower overall tax liability. One quick note though, make sure to tell your tax professional about the QCDs that you do make throughout the year as they will not be identified on your form 1099R. We think QCDs are a great way to support charities while fulfilling those RMD obligations because the QCDs count towards your RMD each year. Alaina, I’m gonna throw it back over to you to talk about gifting from an estate tax perspective. Great. Thanks, Evan. So, I want to briefly touch on federal estate taxes. So, this is a tax that applies to all gifts, whether those gifts are made at death, via your estate plan, or during your life. You can gift up to $19,000 to anyone every year without incurring any tax liability. If you exceed that $19,000 amount or whatever it is in the year of your gift, that transfer is subject to estate taxes. However, there is a current federal estate tax exemption amount of $15 million per person. With this exemption, you can transfer $15 million during your lifetime or at death. If you make transfers during your lifetime, so if you exceed that $19,000 exclusion amount, instead of paying taxes at that time, instead that gift would eat away at the exemption that you have left at your death, the exemption also is typically doubled for a married couple. So $30 million, which means this topic doesn’t apply to most people. You know, I wish it did. I do wish all of our clients an estate tax problem. You can see here a history of the estate tax exemption amount and how it’s increased since 2017. Under the current law it does increase with inflation each year as well. So while it’s $15 million this year, next year it’ll probably be $15 million and change, maybe up to 16 million. Again, depends on inflation. A few things to note. The exempt the estate exemption is per person. Like I said, a married couple to $15 million exemptions can actually pass double that amount before any taxes are due. Second reminder, estate and gift taxes are like every other tax controlled by Congress. Just because this is the law now does not mean that it will always be that way. and we have seen fluctuations in the past. So, keep that in mind and make sure you always consult your financial advisor or legal or tax professional before doing any big gifting. Third, charitable gifts are fully deductible from estate taxes during life or at death. If your estate is worth $15 million over that $15 million amount, you can leave the entire estate or just the overage to charity and your estate will pay no federal estate taxes. And lastly, this tax doesn’t just apply to liquid assets or cash. It applies to gifts of business interest or real estate. You know, I see this all the time where clients will add a child to the deed to their home with the goal of avoiding probate, not realizing that they’ve made a taxable gift of a portion of that house and they’re required to file a 709 for that gift. Again, your professionals will be your best friend when you are looking to transfer any sort of asset and want to avoid any unintentional tax consequence. One more thing, you may think you’re not close to the federal estate tax exemption amount of that 15 million, but do you need to worry about state estate taxes? In this map on your screen, you know, you’ll see which states impose their own estate and/or inheritance tax. The difference between an estate tax and inheritance tax is that the estate tax is paid by the estate of the person that died. Assets are only distributed out of the estate after any estate taxes are paid. With an inheritance tax though, it’s the beneficiary who receives that inheritance and then they pay that tax personally. And you’ll see that little bitty Maryland right there does have both. So if you are a Marylander, make sure you discuss this with your advisors. However, just like the federal estate tax, these states do have varying exemption amounts, but unlike the federal estate tax, which is a flat 40%, many of these states have progressive rates. And one thing that I do want to emphasize here is that the estate tax is imposed on top of the federal estate tax. While you can get a deduction on your federal estate tax for certain estate taxes, it’s usually pretty minimal. So you could end up paying state estate taxes and federal estate taxes.

If you think that, you know, after everything we’ve talked about today, it would be worthwhile to your estate to do some lifetime gifting for estate tax planning purposes, you know, I want to go over the steps of gifting with you, as well as to reiterate the benefits and risks. So, the first step of gifting is to decide, are you gifting outright or you gifting in trust to that irrevocable trust. If you do gift and trust, you have to set up the trust agreement, sign it, decide who the beneficiaries and trust, the trustees are, get all of that settled.

Since this is a webinar about generational wealth, again, we do recommend setting up that irrevocable trust if you are going to be doing any sort of substantial lifetime gifting because of the asset protection that it provides. Then you’ve got your trust or you’re making that gift outright. Next, you’ve got to prepare your assets for transfer. You may need to get approval from business partners, from spouses, things like that. Move assets around. You know, you get all of your ducks in a row. Third, actually transfer the assets. You know, sign the deeds, move the accounts, assign the business interest. the day that those documents get signed or that the assets actually get moved, that’s the day that you’re going to need to provide evaluation for it, which is the fourth step. So, the IRS requires that when you make these gifts, you have to provide adequate disclosure of the value of the gift. What that means, what adequate disclosure is, will depend on the type of asset itself. a closely hold business interest that’s going to have a different valuation method than a piece of real estate for example. Once you’ve got those valuations, file the valuations, the trust agreements, the transfer documents, anything related to these transfers on a 709-gift tax return. The gift tax return is due on April 15th, our regular Tax Day of the year after the gift is made, along with your personal income tax return. However, you can file an extension to October 15th if you’re filing your personal or you’re extending your personal return as well. The best advice I would give you is that do not wait until September of the following year to get the valuations and appraisals done. Then you file, you have a timely filed 709. It starts the three-year statute of limitations for the IRS to contest the values of the gift that you’ve made. And in exchange for taking these steps, you’ll not only use this historically high estate tax exemption, you’ll freeze the value of any growth of those gifted assets and you’ll be providing additional creditor protection in the event that you’re over sued. There are of course some risks that come with this. First off, just know this is typically not a cheap endeavor and if it is, something has gone wrong. You want to make sure that you work with an attorney who specializes in this area of law. You will pay for that expertise. Same goes for the CPA who will file your returns and who you get to appraise your assets. Also, generally speaking, assets that are gifted, whether outright or in trust, do not get a step up in basis for income tax purposes, which is why it’s important to analyze which assets you’re gifting before transferring them to a trust or making that outright gift. And lastly, the biggest risk, your gift tax return can get audited. As with all returns, you know, the IRS can come back and challenge the values that you’ve used, questions about the trust, things like that. Anytime you’re audited, your legal expenses, challenging it can add up. And just to emphasize one more that this is a complicated process. You know, I want to show you what I call the ABCs of estate planning. And the whole point of this slide is just to show you how complicated estate tax planning can get generally. These are all acronyms for different trusts and different assets you can set up during your lifetime and different tools that can be used for gifting. This all gets very complicated. Please do not go down this road without a good team of support. There are very real tax consequences that you may not be familiar with and that can take a lot of analysis to make these plans work correctly. One more side note, these trusts are usually much more complex while you’re alive. The descendants trusts that you create at your death are much easier to understand and administer once you’re no longer with us. So, don’t let complicated estate planning defer you from also looking into creating those descendants trusts at your death.

Evan, what can you tell us about asset location and allocation? Yeah, I can tell you guys a lot. Thanks Alaina. I will have to have you teach my future kids those ABCs and I’ll worry about the other ones for the time being, but let’s move on to asset allocation and location and why they happen to be so important when talking about generational wealth.

When looking at a portfolio, asset allocation is by far the most effective means of capturing market returns. You know, selecting the right mix of assets is an important step in the investment process. Many do tend to focus on less important factors such as stock selection or market timing. Academic research does tell us that stocks have higher returns than bonds, but that obviously doesn’t translate to a recommendation of owning all stock in every case. We use bonds as the risk reducers in our portfolios, allowing us to have access to capital in times of market downturns and have some steady income. If your total portfolio is 70% stock and 30% bonds, it doesn’t mean that every account under that umbrella has to be 70% stock and 30% bonds. When we think about generational planning, you should consider having different asset allocations for different buckets of assets. So maybe you have a trust that you won’t use for a long period of time. it may be beneficial to have a more aggressive stock mix inside that account. Whereas your primary account for living needs or gifting probably doesn’t need to be all stock. It should have some bonds and cash in there for liquidity purposes.

Again, asset allocation and location play such a huge factor in generational wealth preservation. Finding the right strategy to optimize returns and protect the portfolio from inflation or economic downturn are important for passing down this wealth. When talking about changing at your asset allocation, there are many factors that come into play. It may be a life event like retirement, change in career, or maybe you just can’t stand the volatility within stocks anymore. whatever it might be. The best way to understand how a change in asset allocation will affect your overall plan is to talk to a financial adviser. So now let’s take a deeper look into tax efficiency and asset location.

Here at Savant, especially when talking about generational planning, we are very aware of taxes and aim to create portfolios that are going to be tax efficient. So on your screen here, we have three different buckets of assets. Number one, the Roth bucket. This consists of both Roth IAS and Roth 401ks. After tax dollars are invested, so there’s no taxes on earnings, accumulation, or distribution. Number two, the qualified plans like your IAS and 40 o 401ks. There’s no tax whatsoever until the money is distributed from the plan. And then everything after that that is withdrawn is taxed as ordinary income. And then lastly, we have trusts and taxable accounts. The one up there in red. Interest and short-term capital gains are taxed as ordinary income, while dividends and long-term capital gains are taxed at preferential capital gains tax rates. Again, it’s not just about what you invest in. It’s also about where you hold it. So, here’s a few key examples of that. REITs or real estate investment trusts and bonds generate income. That income is taxed as ordinary income. That’s why we think they’re a good fit for traditional IAS where you can defer those taxes until later on. Individual stocks often go into taxable accounts because your beneficiaries can receive a step up in cost basis when they inherit them, potentially avoiding a large capital gains tax bill. International stocks, on the other hand, are generally better outside of IRA in taxable accounts. you know, you may qualify for a foreign tax credit, but in an IRA, that benefit would be totally lost. And lastly, your highest growth investments, think aggressive stock funds or small cap funds are ideal for a Roth IRA because all of that future appreciation can grow entirely tax-free. In short, we like to allocate at funds at the household level, not just the account level, because it allows us to save money by locating assets in the most tax efficient account types. These are several items and changes that can add up to generational wealth over the long run. Now, let’s move on to passing down knowledge.

So, let’s be honest, estate planning is a very tough topic. It brings together two very uncomfortable conversations we have to have. One about death and one about money. For many families, that’s exactly where the conversation ends before it even starts. You know, and you might say, why is that? Culturally in America, we’re taught to value self-sufficiency, hard work, and the American dream. The idea of inheriting wealth can feel like it challenges those values directly. It can make even successful people feel uneasy, like they’re stepping outside the merit-based story that we’ve always told ourselves. As a result, estate planning often happens in silence. Parents don’t explain their plans. Children or heirs don’t ask any questions, and families miss the opportunity to pass down more than just assets. They miss the chance to pass down wisdom. Now, I’m not saying that you need to tell your heirs exactly how much they’re getting down to the dollar. That’s not the point of this. What I am encouraging you to do is one, share the basics of your estate plan, and two, talk openly about what’s worked and what hasn’t worked when it comes to building or receiving your wealth. You know, these conversations don’t just prepare your family financially. They help shape character, values, and lead to a healthier relationship with money for the next generation. One of the biggest issues we see in estate planning is simple but extremely costly. When a loved one passes, the family often has no idea where things are. You know, things like what banks they used and where their bank accounts, where investment accounts are held, and who to even contact about their trusts or their wills. and they might not even know who the trustee is. It can be an extremely overwhelming process in an already emotional time because it’s practical and incredibly relieving to have all this important information in one singular place. So, this guide includes things like key contacts, account access detail, legal documents, and other critical information that will make things go much easier for your loved ones when the time comes. And estate planning isn’t just all about the dollars and documents. We also like to help them through the personal side of things, too. You know, for example, if you have an iPhone, please set up the legacy contact feature on it. This lets a trusted person access your phone and photos if something were to happen to you. You know, me and Alaina are not tech experts by any means, but this is a small step with huge emotional impacts for families. I would just Google iPhone legacy contact and take two minutes to set it up. It’s a very easy win and an extremely meaningful one. I think Evan, it’s not just iPhones that you can look this up also. I think any smartphone now has this feature. So, if you’ve got a Samsung device or a Google device, you know, go ahead and Google that also and figure out how to set it up for your family. See, she’s more of a tech expert than I am. So that’s why we that’s why we work in teams. Said no one ever. But we are a good team.

Well, awesome. Well, let’s move on to passing down knowledge. When I think about this, I like to break it out into two categories, short-term and long-term. So, your short-term knowledge is going to be the blocking and tackling of personal finance. It includes practical foundational skills like how to use credit safely, how to build and follow a budget, and understanding the basic account types. So that’s your checking accounts, your savings accounts, the different types of IRA and brokerage and trust accounts. And then a simple introduction to investing along the way. Please share your own experiences with money and investing, the good and the bad. You know, let’s say your child is excited about something like crypto. This might make you sigh, but rather than dismissing it, try asking what made you interested in this investment in the first place or do you have an exit strategy for when you’re going to try to sell this cryptocurrency? Even if you don’t love the investment, the air your heirs or kids are learning. Every win and loss is valuable experience for a young investor. And then we move on to number two, long-term knowledge. This is where we shift our focus from tactics to values and beliefs. The deeper lessons that build character and support wealth that lasts. People always ask me, what is the best way to teach this? It truly is to live it. Model the values that helped you succeed in the first place. So items like gratitude, discipline, generosity, or delayed gratification. You know, one of my favorite examples of this is we have a family that gives their kids an allowance each year, but they have specific rules around it. So 30% of the allowance has to go to charity, 30% of the allowance has to go into savings, and then they can spend the other 40% freely. I just think it’s such a great way for that family to embed their values around giving, saving, and spending all at once. And then one more key piece of information, like Alaina said before, you need to build out the right team. Help your heirs assemble a trusted group of professionals. So that is a CPA, an estate planning attorney, a financial advisor, and any other specialist that they might need. When your heirs are able to lean on their team, they’re freed up to focus on what they do best and avoid costly mistakes while doing so. Especially for those inheriting wealth for the first time, a good team can make all of the difference. So, in short, teach the fundamentals early, model the values that matter, and surround your family with support that lasts. That’s not how you just pass down money. That’s how you pass down generational wealth and wisdom.

Here at Savant, wealth management does not just entail investments. It is the engine that drives the car, but it is not the only thing we do by any means. We like to look at wealth management in a holistic manner to create a cohesive plan as well as work with your other professionals. I’m going to toss it back over to Alaina now to talk through some moral and fiscal responsibilities.

So, I mentioned this earlier, you know, the three-generation rule of wealth that by the time the third generation rolls in, they’re not working. They’re lazy bums living off of the trust fund. This is not what you had in mind when you created these trusts. So, how do you avoid that? Now, Evan just talked about passing down knowledge. I want to finish our talk today by also telling you how to pass down morals and financial responsibility. You know this is hard. This is not again this is not an easy conversation. This is not something that you know may come naturally having these conversations. But if you haven’t created a very strict trust to avoid having a trust fund baby one day and grandbaby, which essentially means preventing someone from becoming entitled or financially irresponsible due to inheriting that large sum of money, focus on instilling those strong worth, work ethics, financial literacy, and a sense of responsibility. You know, try to instill these from your children at a young age, especially if you plan on leaving them a large inheritance one day. And also openly communicate about the existence and conditions of any trust fund with your kids as they mature. You can also encourage your kids to continue these conversations with their own children. Make sure these morals are multi-generational. Tell them how this money was earned and the sacrifices you made to get there. Remember, this is your legacy. Those kids better remember all of it. So, really, just try to focus on values. Emphasize the importance of hard work and contributing to society. Don’t encourage them to rely solely on this inherited wealth. Let your kids know that even though they have these trust funds to fall back on, that you still want them and your grandchildren and great grandchildren to be full and active participants in society who work and contribute in some meaningful way. Openly communicate with them. You know, that really is the key. And then discuss your expectations and concerns with your children throughout their lives to foster that healthy relationship with money.

So we are going to take a few minutes to answer some questions now. I am going to stop this share here so y’all can see us. And we are gonna pull up some questions. Let me see. Oh, here’s a good one. This is a funny question. I like this one for you, Evan. I get credit card points when I make a charitable contribution online. Are the benefits of a donor advised fund better than my sky miles? That is a good one. That’s an interesting question. In most cases, yes. Using a vehicle like a donor advise fund or just gifting stock directly to charities will be more beneficial to you than gifting outright cash or in this case gifting through a card carrier.  although it probably is less of an adrenaline rush when doing so.  and this is because selling a stock and then gifting it will cause a taxable event whereas gifting it directly to a donor advise fund or directly to the charity will not cause a taxable event. Many people are in that 15 to 20% long-term capital gains tax rate. And so the savings on the tax will most likely outweigh the two to 5% cash back or points you get from the credit card. So I would say instead of using the credit card and getting the sky miles, go ahead and gift the stock to a donor advise fund and use those tax savings to take that trip that you guys have been talking about instead. That’s good advice, Evan. I value my sky miles, but I also value my tax returns for sure. Yes, definitely. I am gonna ask you another one. Yeah, what’s one thing that families can do to make sure their wealth doesn’t just disappear after one generation? From your perspective, since we talked a little bit about my ideas. Yeah. What’s your Yeah, I think mine has to be I think it starts with communication. I think that would be my number one item. You know, I think you can have the best trust setup. Alaina and me can get together and design this amazing, complicated wealth plan or investment strategy, but if your family doesn’t understand your values and how to manage what you they’ve inherited, I don’t think it’s going to last. So, I think you need to bring them in the conversation early. Maybe talk about why you give or how you invest or what you want their legacy to stand for, and again using those tools like the donor advise fund or a family giving meeting are great ways to kind of start that communication. , so if I had to boil it down, it would be communication for sure. This question I’m going to take is a little bit similar. I don’t trust my kids financially now. What’s the best way to set up a trust for their benefit? So, you know, thankfully, if you are anticipating leaving your kids with an inheritance, like I’ve said, the best way to do that is in a trust. And if you know that your kids aren’t going to be financially mature enough to manage that trust now, then the best thing that you can do, honestly, is to put in a third-party trustee. have someone other than your child manage that trust on their behalf and just make it so that your child may never have full access to their trust fund. And the good thing about this is that typically, you know, this sort of trust is going to be set up in your last will in testament or your revocable living trust. And you know, you may not trust your kids financially today. five years from now, it could be a different picture and you can go ahead and update your documents to reflect those changed circumstances. So, don’t necessarily think that what you have in place today is going to be permanent, unless something happens to you, of course, but just know that when you’re doing your estate plan, you’re creating these trusts for your kids, you do have to take into account what you know about your children today. Awesome. Let’s do one more quick one. You guys seem like a good team. Well, I think so. Thank you. Would my estate planning attorney work with an adviser? Yes.100% yes. Alaina and I work closely with many estate planning attorneys. It’s a very collaborative relationship similar to how we work with CPAs or any other professional, and we find that most estate planning attorneys truly do appreciate having me and Alaina on the calls. Yeah, for sure. I mean, I think it’s always nice to be involved in the community, especially in the legal community. We know of a lot of attorneys around and we are happy to help work with them and to coordinate on our client’s behalf. So, that is it for our questions today. I hope that you have enjoyed our webinar. Since we didn’t have time for everyone’s questions, if you would like to discuss your individual situation, our team would love to connect with you. Follow the link in the chat to schedule a complimentary 15-minute call. And otherwise, have fun. Good luck. Thank you so much for joining us. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books, checklists, and other useful financial resources.