You have worked hard for everything you have – and you want to make sure that your loved ones benefit from your hard work in the future.
Without proper planning, however, your wealth could be swallowed up by unnecessary taxes, creditor claims and legal complications with your estate. For an efficient transfer of your money to the next generation, you need to consider all of the different asset-preservation strategies listed below:
1. Revocable and irrevocable trusts
Trusts are one of the most common and flexible tools used in estate planning to protect assets. A key advantage of trusts is that they avoid probate, which can be a lengthy, costly and public process. A revocable trust allows you to maintain control over your assets during your lifetime, only becoming irrevocable upon your death. With an irrevocable trust, you give up control over the assets placed in the trust. Once the trust is established, the terms cannot be easily altered. However, in exchange for this loss of control, assets in an irrevocable trust are protected from creditors, lawsuits, and estate taxes.
2. Family limited partnerships (FLPs)
A Family Limited Partnership (FLP) is an estate planning tool designed to consolidate family assets while maintaining control. In this structure, parents or grandparents typically hold majority ownership (as general partners) and transfer limited partnership shares to their heirs. While complex in structure, they are great for asset protection against creditor claims and can provide significant tax benefits, especially for families with significant business or real estate holdings.
3. Gift planning and annual exclusions
Gift planning is a strategy that allows you to gradually reduce the size of your estate while benefiting your loved ones during your lifetime. The IRS allows you to give up to a certain amount per year (in 2024, it’s $18,000 per individual or $36,000 per couple) without triggering gift taxes, known as the annual exclusion.
4. Qualified personal residence trusts (QPRTs)
A QPRT is an advanced estate planning strategy that allows you to transfer ownership of your home to your heirs while retaining the right to live in the residence for a set period. After the term ends, the home belongs to your beneficiaries. Because you retain the right to live in the home, the value of the gift is discounted, which minimizes gift tax exposure – while simultaneously removing the value of the home from your taxable estate.
5. Asset protection trusts (APTs)
If you want maximum protection for your estate from creditors, lawsuits and other legal claims, APTs are an effective solution.
6. Charitable remainder (CRTs) and charitable lead trusts (CLTs)
Charitable remainder trusts and charitable lead trusts combine philanthropy with tax and estate planning benefits. CRTs allow you to receive income from the trust during your lifetime, with the remainder going to a designated charity upon your death. CLTs direct the income from the trust to a charity for a set time, with the remainder going to your heirs after that period ends. Both offer significant tax advantages for your estate.
Good estate planning means looking at your goals and adapting to both your changing circumstances and changing laws. Proactive planning can help make sure your legacy is secure.
