Building generational wealth is a significant achievement. Understandably, preserving it for future generations requires careful estate planning. Without a solid plan, wealth accumulated over a lifetime can quickly diminish due to taxes, legal disputes, mismanagement and/or financial missteps by heirs.
If these concerns are pressing for you, know that a well-structured estate plan is the foundation for protecting generational wealth. At a minimum, this effort should include a will and trusts to better ensure that assets are distributed according to your wishes.
Many high-net-worth individuals use revocable living trusts to maintain flexibility while they are alive, allowing them to modify terms as needed. Irrevocable trusts, on the other hand, can provide asset protection and tax advantages by removing assets from the estate and shielding them from creditors or legal disputes.
Minimizing tax liability and protecting assets over time
Although California does not impose a state estate tax, federal estate taxes can significantly impact generational wealth. Strategic estate planning techniques, such as gifting strategies, charitable trusts and family limited partnerships, can help reduce tax liability and preserve more assets for heirs.
Gifting assets during your lifetime is another way to reduce taxable estate size. The IRS allows individuals to give up to $18,000 per recipient annually (as of 2024) without triggering gift taxes. Over time, these gifts can transfer substantial wealth while minimizing estate tax exposure.
With this being said, wealth preservation is an effort that needs to extend beyond tax planning. Without safeguards, heirs may mismanage their inheritance, lose assets in divorces or face lawsuits from creditors. Spendthrift trusts can help protect assets from reckless spending or financial irresponsibility by placing restrictions on how beneficiaries access funds.
For families with businesses, a succession plan is important when it comes to a smooth ownership transition. Establishing a family limited partnership (FLP) or a limited liability company (LLC) can help control how business assets are passed down while providing liability protection.
Broadly speaking, by combining legal protections, tax strategies and financial education, families can create a lasting legacy and safeguard generational wealth for years to come.