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Wealth Transfer Considerations for Women


While estate and inheritance planning can be a difficult subject to approach, it's crucial to ensuring loved ones are cared and for maximizing generational wealth. This important conversation and planning is often something women end up leading.


This is because women are often the caretakers in the family and that they are increasingly also taking on an equal or leadership role in managing household finances. Women also live an average of 5.8 years longer than men. That's important because it means that there's a greater chance that you'll need your assets to last for a longer period of time.

The resources below are designed to help you avoid common pitfalls and come away with the peace of mind that your or your loved one's estate plan is in good order, will pass as you or they intend while retaining its maximum possible value.  

It's all part of our comprehensive and strategic Plan Well. Invest Well. Live Well.™  process.

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GUIDE TO MAXIMIZING GENERATIONAL WEALTH

This guide provides an overview of the estate planning and inheritance process and explores common challenges and pitfalls to leaving and receiving wealth. After reading it, you'll walk away knowing what to avoid, and what steps to proactively take to ensure you're well prepared to maximize your inheritance.

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Advanced Estate Planning Concepts for Women

You will need to think about the disposition of your assets at your death and any tax implications. Statistically speaking, women live longer than men. So if you are married, you'll also probably have the last word about the final disposition of all of the assets you've accumulated during your marriage. You'll want to consider whether these concepts and strategies apply to your specific circumstances.

Here are some major factors to consider, and what to know about each:

Transfer Taxes

Income Tax Basis

Lifetime Giving

Trusts

Life Insurance

When you transfer your property during your lifetime or at your death, your transfers may be subject to federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. (The top estate and gift tax rate is 40%, and the GST tax rate is 40%.) Your transfers may also be subject to state taxes.


Federal gift tax

Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to$18,000 (in 2024) per recipient. Married couples can effectively make annual tax-free gifts of up to $36,000 (in 2024) per recipient. You can also make tax-free gifts for qualifying expenses paid directly to educational or medical services providers. And you can also make deductible transfers to your spouse and to charity. There is a basic exclusion amount that protects a total of up to $13,610,000 (in 2024) from gift tax and estate tax.

Federal estate tax

Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and to charity, and there is a basic exclusion amount that protects up to $13,610,000 (in 2024) from tax.


Portability

The estate of someone who dies in 2011 or later can elect to transfer any unused applicable exclusion amount to his or her surviving spouse (a concept referred to as portability). The surviving spouse can use this deceased spousal unused exclusion amount (DSUEA), along with the surviving spouse's own basic exclusion amount, for federal gift and estate tax purposes. For example, if someone died in 2011 and the estate elected to transfer $5,000,000 of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of about $18,610,000 ($13,610,000 basic exclusion amount plus $5,000,000 DSUEA) to shelter transfers from federal gift or estate tax in 2023.

You may believe you or your spouse will never have more than $27.22 million combined; but the current exclusion will revert to the pre-2017 amount—$5 million adjusted for inflation—on January 1, 2026, if Congress does not act. 

That means the 40 percent estate tax rate could apply to gifts over approximately $6.4 million come 2026, requiring many families with high net worth to reevaluate their estate plan and adjust legal strategies to preserve and protect more of their property and investments. Changes may include taking advantage of the deceased spousal unused exclusion amount (DSUEA) if they pass away prior to January 1, 2026.

Federal generation-skipping transfer (GST) tax

The federal GST tax generally applies if you transfer property to a person two or more generations younger than you (for example, a grandchild). The GST taxmay apply in addition to any gift or estate tax. Similar to the gift tax provisions above, annual exclusions and exclusions for qualifying educational and medicalexpenses are available for GST tax. You can protect up to $13,610,000 (in 2024) with the GST tax exemption.

Indexing for inflation

The annual gift tax exclusion, the gift tax and estate tax basic exclusion amount, and the GST tax exemption are all indexed for inflation and may increase in future years.

Generally, if you give property during your life, your basis (generally, what you paid for the property, with certain up or down adjustments) in the property forfederal income tax purposes is carried over to the person who receives the gift. So, if you give your $1 million home that you purchased for $50,000 to your brother, your $50,000 basis carries over to your brother — if he sells the house immediately, income tax will be due on the resulting gain.

In contrast, if you leave property to your heirs at death, they get a "stepped-up" (or "stepped-down") basis in the property equal to the property's fair market value at the time of your death. So, if the home that you purchased for $50,000 is worth $1 million when you die, your heirs get the property with a basis of $1 million. If they then sell the home for $1 million, they pay no federal income tax.

Making gifts during one's life is a common estate planning strategy that can also serve to minimize transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion, which lets you give up to $18,000 (in 2024) to as many individuals as you want gift tax free. As noted above, there are several other gift tax exclusions and deductions that you can take advantage of. In addition, when you gift property that is expected to appreciate in value, you remove the future appreciation from your taxable estate. In some cases, it may even make sense to make taxable gifts to remove the gift tax from your taxable estate as well.

There are a number of trusts that are often used in estate planning. Here is a quick look at a few of them.

  • Revocable trust: You retain the right to change or revoke a revocable trust. A revocable trust can allow you to try out a trust, provide for management of your property in case of your incapacity, and avoid probate at your death.
  • Marital trusts: A marital trust is designed to qualify for the marital deduction. Typically, one spouse gives the other spouse an income interest for life, the right to access principal in certain circumstances, and the right to designate who receives the trust property at his or her death. In a QTIP variation, the spouse who created the trust can retain the right to control who ultimately receives the trust property when the other spouse dies. A marital trust is included in the gross estate of the spouse with the income interest for life.
  • Credit shelter bypass trust: The first spouse to die creates a trust that is sheltered by his or her applicable exclusion amount. The surviving spouse may be given interests in the trust, but the interests are limited enough that the trust is not included in his or her gross estate.
  • Grantor retained annuity trust (GRAT): You retain a right to a fixed stream of annuity payments for a number of years, after which the remainder passes to your beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.
  • Charitable remainder uni trust (CRUT): You retain a stream of payments for a number of years (or for life), after which the remainder passes to charity. You receive a current charitable deduction for the gift of the remainder interest.
  • Charitable lead annuity trust (CLAT): A fixed stream of annuity payments benefits a charity for a number of years, after which the remainder passes to your non-charitable beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

Life insurance plays a part in many estate plans. In a small estate, life insurance may actually create the estate and be the primary financial resource for your surviving family members. Life insurance can also be used to provide liquidity for your estate, for example, by providing the cash to pay final expenses, outstanding debts, and taxes, so that other assets don't have to be liquidated to pay these expenses. Life insurance proceeds can generally be received income tax-free.

Life insurance that you own on your own life will generally be included in your gross estate for federal estate tax purposes. However, it is possible to use an irrevocable life insurance trust (ILIT) to keep the life insurance proceeds out of your gross estate. With an ILIT, you create an irrevocable trust that buys and owns the life insurance policy. You make cash gifts to the trust, which the trust uses to pay the policy premiums. (The trust beneficiaries are offered a limited period of time to withdraw the cash gifts.) If structured properly, the trust receives the life insurance proceeds when you die, tax free, and distributes the funds according to the terms of the trust.




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