Building a Legacy: Strategies for Transferring Wealth Efficiently
In this blog post, we continue the theme of efficiently passing assets to the next generation. Over the last two blog posts, we have discussed what controls the transfer of your assets and what happens after wealth passes to the next generation. We explored how beneficiary designations, account titling, and estate documents work together, as well as how different types of inherited assets can create very different tax consequences and planning opportunities for your beneficiaries.
An effective estate plan goes beyond simply deciding who inherits your wealth. It also involves making intentional decisions during your lifetime that can reduce taxes, preserve family wealth, and align your financial resources with your long-term legacy goals.
Several planning strategies are available to improve the efficiency of wealth transfers. Such as through lifetime gifting, charitable planning, or specialized trust structures. In this final article of the series, we will look at some of the most common strategies families use to create a more tax-efficient and intentional legacy.
Estate Tax & Gift Tax
If you are an individual with a high net worth, you may face significant tax consequences after your lifetime. One of the primary considerations is the federal estate tax exemption, which determines how much wealth can pass to heirs before federal estate taxes apply. In 2026, the federal exemption is $15 million for individuals and $30 million for married couples. Assets above these thresholds may be subject to the federal estate tax.
You may be wondering what is actually included in your taxable estate. Generally, you begin by adding together the fair market value of all assets you own, including:
- Financial accounts (checking, savings, money markets, CDs)
- Life insurance proceeds (if you own the policy or the proceeds are payable to your estate)
- Retirement accounts (Traditional and Roth IRAs, 401(k)s, etc.)
- Personal property (artwork, antiques, jewelry, collectibles)
- Vehicles (automobiles, boats, aircraft)
- Business interests (sole proprietorships, partnerships, privately held companies)
- Real estate (primary residence, vacation homes, investment properties, and land)
From there, certain allowable deductions can reduce the value of the taxable estate, including:
- Outstanding debts and liabilities
- Funeral, administrative, and probate expenses
- Assets passing to a U.S. citizen spouse under the unlimited marital deduction
- Assets bequeathed to qualified charitable organizations
After subtracting these deductions and accounting for prior taxable gifts, the remaining value is compared to the federal exemption amount. If the estate exceeds the exemption, the excess may be subject to estate tax rates of up to 40%. For larger estates, this can result in a substantial tax liability and significantly reduce the amount ultimately transferred to beneficiaries.
The good news is that several planning strategies are available to help reduce this exposure while maximizing the value passed to heirs. The following sections highlight some of the most common approaches.
Lifetime Giving
The easiest strategy you can implement is lifetime giving. In 2026, an individual can give up to $19,000 per person, per year, to as many recipients as they want without triggering any gift tax. For married couples, this means gifting up to $38,000 per recipient.
If you exceed the annual gifting limit in any year, you must report it to the IRS on Form 709. However, you don’t pay gift tax until the amount of your lifetime gifts exceeds the federal exemption amount. There are also certain circumstances that would qualify as an exception to the annual limit, allowing you to give an unlimited amount of money. These exceptions include:
- Medical Expenses: Payments made directly to a hospital, doctor, or health insurance provider.
- Educational Expenses: Payments made directly to a qualifying educational institution for tuition (must be for tuition only; books, room, and board do not qualify).
- Spousal Gifts: Transfers to a spouse who is a U.S. citizen.
- Charitable Donations: Gifts to a qualifying tax-exempt organization.
- Political Contributions: Gifts to a recognized political organization.
Using a lifetime gifting strategy can significantly reduce your taxable estate, as long as it’s planned years in advance. This isn’t something you can decide to do at the last minute and expect it to make a huge impact on your tax bill. However, there are still plenty of other strategies you can implement.
Charitable Planning
Charitable giving can be a powerful lever when constructing a financial plan during and after your lifetime. Giving to charity can reduce your income tax burden, minimize capital gains, lower your taxable estate, and preserve generational wealth.
There are several giving techniques you can utilize to lower your taxable estate after your lifetime. Because of the unlimited charitable estate tax deduction, donated assets are removed from your estate entirely. This can be done through several structured mechanisms:
- Direct Bequests (At Death): Assets left directly to qualified charities through your will or trust are fully deductible.
- Lifetime Gifts (While Living): Making donations now shrinks the overall size of your estate before you pass away. While you claim the income tax deductions now, these gifts also could avoid future estate growth and potential estate taxes on those funds.
- Retirement Account Designations: Naming a charity as the beneficiary of your Traditional IRA or 401(k) can be tax-efficient. It not only removes the asset from your taxable estate but also spares your heirs from inheriting a massive income tax burden.
- Charitable Trusts: This allows you to split interests between your heirs and a charity. This locks in tax deductions and reduces the taxable value of the assets passed on to family members.
While these mechanisms are very helpful for after your lifetime, there are also plenty of strategies you can implement during your lifetime that will help you now and later.
#1: Use Retirement Accounts to make a QCD
Retirement accounts, specifically Traditional IRAs, can be one of the most tax-burdened assets in an estate because withdrawals are treated as ordinary income. This is especially true if you are at RMD age (73 if born between 1951 and 1959). If your RMD exceeds the amount you need for income, you can utilize a qualified charitable distribution (QCD) strategy. This allows IRA owners aged 70½ or older to transfer funds directly from an IRA to a qualified charity, up to $111,000 per individual ($222,000 for married couples). This strategy has many advantages, such as:
- The transferred amount is excluded from your taxable income entirely.
- The QCD counts toward your required minimum distribution for the year.
- Since the amount is excluded from income (rather than deducted), it can benefit all donors who take the standard deduction.
- The QCD lowers your AGI, which in turn may reduce your Medicare premium surcharges and keep more Social Security income tax-free.
For donors with large IRA balances and RMDs, utilizing a QCD makes a lot of sense. Making QCDs a consistent part of your annual giving plan can substantially reduce the lifetime tax cost of your retirement savings.
#2: Donating Long-Term Appreciated Assets
When you think about charitable giving, you are most likely thinking about giving via check. However, you can donate appreciated investments, such as stock, or other appreciated assets like real estate. This is almost always more tax-efficient than a cash donation of the same value.
The reason is that if you sell an appreciated asset and then donate the proceeds, you first owe capital gains tax on the appreciation. When you donate the assets directly to a qualified charity, you skip that tax entirely and may still deduct the full fair market value.
For example, consider a donor who owns stock with a cost basis of $20,000 now worth $100,000. They can either:
- Sell and donate cash: Pay up to 20% (capital gains tax) on the $80,000 gain ($16,000) and donate $84,000.
- Donate stock directly: Pay $0 in capital gains tax and donate $100,000. Allowing you to deduct $100,000 on your tax return.
#3: Take Advantage of Donor Advised Funds
A donor-advised fund (DAF) is a charitable giving account that is sponsored by a public charity. You can make a tax-deductible contribution today, invest those assets, and recommend grants to qualified nonprofits over time. DAFs are a very popular tool used for charitable giving. They are flexible, cost-efficient, and offer significant tax advantages.
Some tax benefits of utilizing a DAF include:
An immediate deduction in the year you fund the account, even if no grants are made until years later. Tax-free investment growth on all contributed assets. The ability to accept a broad range of asset types (cash, real estate, private business interests).
DAFs are also a practical and flexible tool for estate planning. By naming your DAF as the beneficiary in your will, trust, or retirement account, you can ensure that your charitable giving continues seamlessly after your lifetime.
Charitable Trusts
For individuals with larger estates, charitable trusts can add an additional layer of tax efficiency but also add significant complexity. The two most common structures used are Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs).
A CRT is useful for donors who hold highly appreciated, low-income-producing assets. Such as real estate or concentrated stock positions. This is perfect if you want to convert these assets into an income stream without triggering a large immediate capital gains tax bill. The donor transfers assets to a trust, the trust pays income to the donor for a period, and the remaining assets pass to charity. A partial charitable deduction is received up front, and immediate capital gains taxes on appreciated assets are avoided.
A CLT serves the opposite of a CRT. They reduce the taxable value of wealth transferred to heirs, particularly for families focused on multi-generational giving and legacy preservation. The trust pays income to a charity for a period of time, and the remaining amount passes to heirs. This reduces your taxable estate, resulting in gift and estate tax savings on assets passing to heirs.
A well-designed estate plan is about much more than drafting documents or deciding who receives your assets. It is about understanding how wealth transfers, recognizing the tax implications that may arise, and implementing strategies that help preserve more of what you have built for the people and organizations that matter most to you.
There is no one-size-fits-all solution. The right strategy depends on your family circumstances, the types of assets you own, and the legacy you hope to leave behind. Periodically reviewing your estate plan and coordinating it with your tax and financial planning strategies can help ensure that your intentions are carried out and that the wealth you have worked so hard to build benefits future generations in the most effective way possible.