It is not uncommon for people to talk to an estate planning attorney because they want to do everything possible to keep wealth in the family. Even people who do not consider themselves wealthy often ask about how to keep as much of their property in the family as possible, instead of losing it to taxes or squandering it in other ways.
While this is an important question, it’s also an incredibly complicated one. When people want to keep wealth in the family, there are a number of strategies and tools available to allow them to accomplish this goal. You will need to speak to your attorney for a more comprehensive overview of what family wealth planning involves, but today we are going to take a look at some of the most commonly used strategies to keep property and wealth in the family.
Keeping Wealth in the Family
- Lifetime Gifts. One of the easiest ways to ensure your property gets transferred to your closest family members or loved ones is simply to make a gift of the property during your lifetime. Though there are specific tax implications that come with lifetime gifts, there is significant leeway that allows you to give gifts to individuals every year without incurring a tax penalty. As long as you stay under the allowed gift tax limit, you can give a significant portion of your assets without having to pay any taxes on those gifts. Remember, however, these gifts could disqualify you for Medicaid benefits should you require long-term care.
- Family Loans. Sometimes it might be beneficial to give your family members a low interest loan instead of making an outright gift. As with lifetime gifts, there are specific rules about making loans to family members if you want to avoid gift tax issues. Your attorney will explain these rulese, but you might be able to use a loan to keep wealth in the family without incurring significant tax penalties. A loan also adds an element of financial responsibility that gifts may not offer.
- Employing Family Members. If you own your own business, employing family members and paying them a salary, including them as partial owners of the business, or even selling the business to family members can be effective ways to keep wealth in the family. When you run a business and employ family members, you pay them wages just as you would anyone else. You can effectively manage income and income tax considerations by structuring salaries and compensation to take advantage of the different tax brackets for those earning higher incomes and those earning lower incomes. These strategies and others make owning a business a flexible way to keep wealth in the family.