Multigenerational Family
Philanthropically Minded

Situation

Paul is in his late 60s and newly retired when he decides it is time to start thinking about legacy planning. He is a former business executive, father of three, and grandfather of five, who loves growing businesses and executing strategic plans. However, he does not have a plan for himself. He has a significant amount of wealth due to his successes in the business world, and there is a considerable potential estate tax issue. He is also very passionate about giving back to those in need, particularly those needing educational assistance.

Strategy

After extensive conversations about Paul’s goals, it is determined that a complex estate plan needs to be established through a series of irrevocable trusts, including grantor retained annuity trusts. By placing some of his assets inside these trusts, they are protected from future estate taxes. Due to the size of Paul’s revocable trust, we also have in-depth annual tax planning discussions with his CPA, ensuring he pays in enough tax to avoid any interest or penalties from the IRS.

Due to Paul’s philanthropic nature, we update his comprehensive financial plan to determine how much he could give away and still meet his retirement goals. He wants to have a specific say in where his donations are given and to find a way to honor his late mother. We need a multi-faceted approach to his charitable giving while reducing the overall size of his estate.

First, we recommend a private family foundation in his mother’s name. She was an educator, and Paul, along with his children, will determine who was eligible for the charitable gifts through scholarships. Second, he will gift up to the annual gift tax exclusion to his children and grandchildren through their 529 plans, which will be used to pay for their entire education. Finally, as part of our annual comprehensive tax planning with Paul and his CPA, we discuss additional charitable giving through in-kind donations of appreciated securities. All these gifts will reduce his estate tax and annual tax liability.

Paul also currently lives in a state with a high state income tax while spending quite a bit of time in Florida, which has no state income tax. We recommend buying a place in Florida and becoming a full-time resident, allowing him to save a significant amount on taxes. The real estate purchase will pay for itself within a few years from the savings on the eliminated state income tax.

Outcome

Paul enjoys retirement for many years, spending time with his family through extensive travel. He donates annually to the individuals and organizations that are so important to him and spends a significant amount of time on nonprofit boards.

When Paul passes away his legacy lives on through his children, grandchildren, and his private family foundation. Fortunately, for his family, the planning pays off as there is no estate tax owed when he passes.

Today, all three of his kids are clients, and we meet regularly to discuss their planning goals, which include annual tax planning, philanthropic gifting, comprehensive retirement plans, cash flow planning, new business endeavors, and company-sponsored retirement plans. Even though they are all related, they all have very different family dynamics and unique goals that allow us to plan for each specific family.  

This common scenario is hypothetical and provided for informational and illustrative purposes only. It does not represent an actual client of Spraker West Wealth Management, nor is it based on the experiences of any current or past client. The scenarios, strategies, and outcomes described are not intended to be projections of future performance or an indication of actual results. No portion of this content should be construed as a guarantee or assurance that any client or prospective client will experience the same or similar results or level of satisfaction if Spraker West Wealth Management is engaged to provide investment advisory services. All investment situations are unique, and results will vary based on individual circumstances, goals, risk tolerance, market conditions, and the client’s own actions, effort, and discipline. Past performance is not indicative of future results.