Taxes and talking. Both are key ingredients to creating a successful wealth transfer to the next generation.
Taxes are the obvious component. Increasing your tax efficiency means more money transferred to the people and causes most important to you.
Talking may be less obvious but is also vital. The more effective you are at communicating your wishes to the next generation, the greater the likelihood that your wealth transfer strategy will succeed.
Here, we offer a few key considerations on these two important topics.
A timely tax opportunity
Historically high estate and gift tax exemptions have created a rare opportunity for significant wealth transfer. The clock is ticking to take advantage of this exemption, which is why it’s important now to understand if the changes impact your estate and, if so, create a plan to take action.
Here’s the background: The lifetime estate and gift tax exemption is the amount of assets that each person can transfer tax-free. The exemption in 2024 is $13.61 million per person and $27.22 million for a married couple. But on Jan. 1, 2026, it’s scheduled to go back to a previous level—about half of the current exemption. So if the pending reduction in the lifetime exemption may increase your estate tax liability, then it’s wise to consider strategies for transferring assets—especially those with the potential for future appreciation—out of your estate before the start of 2026.
Congress could extend the higher exemption amount between now and the sunset in 2026. But if the exemption impacts you, it’s important now to meet with your advisors to discuss your options for both scenarios.
“Even if you’re unsure whether this is something you want to do, we need to model it out now and explore all possible situations so you can make informed and educated decisions,” says Catrina Crowe, a Truist Wealth advice and planning strategist.
Among the topics that your wealth team will discuss with you:
- Your capacity to gift: At what point is it appropriate to consider significant gifting, and how does that impact your other wealth priorities? Determining your capacity to gift requires a quantitative answer based on running different scenarios.
- Your assets to gift: If gifting before the exemption sunset makes sense, which assets will you include, and how will that decision impact your current and future cash flow?
- Your method of gifting: There are many strategies to choose from, such as an outright gift, a trust, or even more complex structures.
“It’s great planning for a lot of our clients to start transferring assets out of their estate, particularly assets that they know are going to appreciate,” Crowe says. “Even if there is an action that made this tax exemption permanent, many clients are already in a taxable situation. So they really need to start going through the process of figuring out what their plan looks like.”
One other important reason to plan now: Your wealth team is just one piece of the larger group that you’ll need. Attorneys, accountants, and others you rely on for planning advice and document creation will be busy between now and the exemption sunset. In addition, if you’re transferring assets such as personal property, real estate, or private business interests, a qualified appraisal will be needed.
“And you don’t want to be last on anyone’s list,” Crowe says.
One popular trust for a wealth transfer strategy
If you’ve decided to take advantage of gifting now, one popular way to make that happen is with a spousal lifetime access trust (SLAT), Crowe says.
A SLAT permits one spouse to make a gift into an irrevocable trust to benefit the other spouse. Other family members can be included as beneficiaries—when the beneficiary spouse dies, the remaining trust assets are passed to the other beneficiaries. SLATs remove assets from the combined estate while providing flexibility to access the assets. The donor spouse can still benefit from the assets in the trust, Crowe says.
“Once the assets are distributed to the beneficiary spouse, that spouse can do what they want with them,” Crowe says. “So the spouse who creates and funds the trust theoretically can receive the benefit of those assets.”
One potential disadvantage is that the trust is irrevocable. If the spouses divorce or the beneficiary spouse dies, the donor spouse may no longer have indirect access to the trust assets.
Crowe offers three other watch-outs when creating SLATS:
- Spouses can create SLATs to benefit each other, but the trusts can’t be identical. Different distribution terms, trustees, and beneficiaries are all ways to make the two trusts acceptable under IRS guidelines.
- While you can use assets in a SLAT to pay for general living expenses, it’s not an efficient use of the trust because those assets aren’t going to be subject to estate tax at the grantor’s death or when the beneficiary spouse dies. “When they’re taking assets out of those trusts to pay for their mortgage, for example, they’re essentially taking assets from a non-taxable bucket and putting them into a taxable bucket,” Crowe says.
- In community property states, spouses should be careful to fund SLATs with separate property to avoid inclusion of the trust in the beneficiary spouse’s estate.
Listen now: Hear more about SLATs and other trusts in Episode 11 of our podcast, “I’ve Been Meaning To Do That.”
Including your business in an estate tax exemption
The sunset of the estate tax exemption in 2026 also impacts business owners who are considering how to transfer the business to the next generation. Businesses tend to be illiquid—most of the owner’s money is in the business itself. So when a business is transferred to the next generation, it may be difficult for the new owners to pay the estate tax that’s due, says Chad Forsberg, a Truist Wealth advice and planning strategist who specializes in working with business owners.
Transferring the business—or transferring part of it—now, when the exemption is higher, is one tax-efficient option. For business owners who worry about giving away control of the business, Forsberg reminds them that the transfer doesn’t have to be all or nothing.
“Many business owners want to maintain control over the business—they’re not quite ready to hand over all the decision-making, too,” he says. There are options to prevent that, such as giving away non-voting stock in the business. “So they’re giving away some of the value of the business, and they may not get all the dividends from the business anymore, but at least they still control the vote.”
Business owners should talk with their personal wealth advisor soon if they want to take advantage of the current estate tax exemption. One reason: The value of the business will need to be determined.
“The business owner may not know how much their heirs would have to come up with in estate taxes, which are based on the business value,” Forsberg says. And, like physically getting the documents of an estate plan in order, that valuation takes time.
“Especially to accomplish what they want for a large, complicated business, they’ve got to make many decisions about how a transfer will affect the business,” he adds. “So the longer they wait, the harder it will be because the attorneys, accountants, and all the other advisors they rely on will be really busy with other people.”
Mixing in the value of proactive communication
No matter which path you choose to pass your wealth across generations, communication is an essential ingredient to sustain it. Why? Open and authentic communication between family members creates trust, and trust helps to prevent family conflict.
The Center for Family Legacy at Truist works with families to sustain wealth. Among the center’s 25 best practices for multi-generational families is creating a communications plan that includes how much information you want to share, says Bill Lyons, director of governance at the center.
“We often tell people you don’t have to tell your family everything in order to have effective communication with them,” Lyons says. Communication is about both talking and listening. Inviting your family to ask questions can be helpful in understanding what information is needed and appropriate for different family members. “We also advise setting the expectation in advance that just because a question is asked, doesn’t mean it will be answered right away.” The key is to “develop a plan to communicate what you think is appropriate and create a timeline for conveying that information.”
The next generation often knows more than you think they do about the family’s wealth, Lyons says. So there’s an opportunity for you to help shape the narrative about those resources and connect those resources to family values and community impact. Family wealth isn’t just about the dollars. Understanding family purpose and identity builds camaraderie and provides a foundation for the family to rally around.
“Families should be proactive,” Lyons says. “If someone is going to be the executor of your estate, do they know that and are they prepared for that role? And what things would they like to learn over the next 10 or 20 years to prepare for that role?”
A communications plan is something that is often put off for another day. But it’s also an area where your wealth team can help you implement a strategy.
“Let your advisor know that a communications plan is important,” Lyons says. “Just take one step—we can help figure out together what the next steps are.”