Close this search box.

5 Simple Ways To Protect And Transfer Wealth

A wise man once said, “Being the richest man in the cemetery doesn’t matter to me.”

The fact of the matter is that we work hard our entire lives to accumulate wealth knowing full well that we can’t take it with us when we are gone. So why do we continue to build wealth? Studies have shown that as much as people build wealth for independence and stability, they have an equal desire to use their wealth for the benefit others, i.e.: creating a better life for their heirs or donating to the less fortunate. Notice there was no reference to taxes. When we die, our wealth can go to three places:

1.            People (loved ones)

2.            Charity

3.            Taxes

The reason I list them in this order is because, with careful planning, options 1 and 2 can be maximized. Option 3 is the catch-all bucket – whatever you don’t plan for, the government will gladly collect on. So, what are the five simple strategies that can help you keep your wealth?

1. Create a plan and educate heirs

Money Magazine did a study in 2015 stating that 70% of wealthy families lose their wealth by the second generation, and 90% by the third. This has to be the highest priority to ensure wealth is kept and not spent. Be deliberate in including your family members and heirs in your wealth plan. Implement a routine family board meeting to review important topics, such as the family budget, investment portfolio, goals, and objectives. Opening the lines of communication will develop trust and curiosity that will ultimately give your wealth meaning and purpose in the eyes of the heir(s). Without attaching a purpose to their inheritance, you run the risk of it going to waste because the money doesn’t represent anything more than dollars and cents. If you need a facilitator, there are family advisors and consultants available who can help develop guidelines for an effective family board meeting.

2. Annual Gifts

Assuming you have effectively educated your heirs, you can begin gifting to them. The 2020 annual gift exclusion is $15,000, meaning you can give a loved one $15,000 and $30,000 annually if you are married without tax implication. This can be a great way to gift to your heirs while you are alive and able to see the fruits of your generosity.

3. Roth Conversions

With recent rule changes (Secure ACT) regarding inherited IRAs, beneficiaries can no longer “stretch” their inherited retirement accounts. This means accounts must now be completely disbursed by December 31st of the 10th anniversary. A Roth account is a tax-free account, meaning you pay the taxes for your heirs today and invest the proceeds tax-free forever. This takes the stress away from beneficiaries having to plan for future tax payments, especially if the retirement accounts transferred have significant dollar values.

4. Family Lending

If your belief is that making money helps you appreciate money, then you might forego the gifting route and look to provide family members with credit opportunities. The IRS has provided special interest rates for intra-family lending called Applicable Federal Rates, which are considerably lower loan rates than traditional financial institutions would offer. This option also offers the convenience of avoiding traditional underwriting. Be sure to properly document the loan and structure based on IRS guidelines.

5. Irrevocable Trusts

This is the most effective strategy to minimize estate tax implications. There are many different types of irrevocable trusts available: irrevocable grantor trusts, grantor retained annuity trusts, charitable remainder annuity trusts, and spendthrift trusts to name a few. The purpose of these trusts is to create an entity to hold appreciating assets where they can grow and accumulate without negatively impacting your estate exemption. The federal estate exemption limit for 2020 is $11.58MM per person. Anything exceeding that amount will be subject to a steep federal estate tax. Removing highly appreciating assets can ensure that any future growth will be excluded from your estate while still providing flexibility for you to access cash flow if necessary. These trusts can be highly complicated and should always be considered with legal and professional counsel.

Remember, these strategies must be implemented while you are alive in order to be effective. The earlier you start, the more likely you will be able to effectively minimize your estate tax burden and ensure your family’s wealth goes where you want it to go.

William Wang, CFP®
President, HFG Trust

Wealth is often built with others in mind, to leave behind a legacy that will pass on from one generation to the next.

Learn more about our commitment towards helping our clients to complete the financial goals they have set out for themselves and their families by visiting this page.


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Community First Bank, HFG Trust, and HFG Advisors have no duty or obligation to update the information contained herein. Further, Community First Bank, HFG Trust, and HFG Advisors make no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services, banking services, or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Community First Bank, HFG Trust, and HFG Advisors believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be copied, reproduced, republished, or posted in any form without the prior written consent of Community First Bank and/or HFG Trust and/or HFG Advisors. HFG Advisors, Inc, is a wholly owned subsidiary of HFG Trust, LLC. HFG Trust, LLC is a Washington state-registered Trust company and wholly owned subsidiary of Community First Bank.