What wealth transfer strategies should I consider?

Once you have achieved financial independence, or it is obvious that you will be able to do so, it makes sense to assess the pros and cons of the many wealth transfer strategies available and determine which could best meet your needs. We frequently help our clients determine which wealth transfer strategies to implement and then assist them in maximizing the benefits of those strategies. 

For example, many of our clients regularly create GRATs with a two year term in an effort to transfer some of their portfolio wealth to their children tax-free. If this makes sense for you, we will assist you in maximizing the benefits of these GRATs through our unique GRAT management process which is designed to take advantage of market volatility.  This process begins at the time each GRAT is created and continues until each GRAT’s termination during which time we seek to maximize the amount of wealth you transfer estate tax-free and minimize the income tax burden as well. 

To implement our unique GRAT management process we:

  • assist you in identifying assets in your portfolio with the greatest opportunity to increase in value over the next two years at the time of the establishment of each GRAT
  • have the applicable assets transferred into one or more asset class GRATs and work with your attorney to compute the annuity amounts
  • assist in determining the amount of your wealth transfer goal for each GRAT as well as the point at which you’ll determine that the GRAT will not be successful
  • establish a process to regularly monitor the value of your GRATs to determine whether these specific high or low point amounts have been reached
  • substitute cash or short-term bonds you hold outside the GRAT for the GRAT assets when the high or low point have been reached
  • work with your attorney and trustee to promptly re-GRAT the assets transferred to you from the GRAT(s)

When the assets in the GRAT have increased significantly and reached their designated high point, you are able to “lock in”. This will help achieve your wealth transfer goal by exchanging the appreciated assets for assets that will maintain that high value until the end of the GRAT term. On the other hand, if the GRAT assets have fallen in value to their designated low point, you are able to potentially transfer even more to your children tax-free at the end of the new GRAT’s term. This is attained by removing those assets when they are down and transferring them to a new GRAT prior to the termination of the GRAT. We also assist you in determining which assets should be transferred back to you and/or sold to minimize the amount of unrealized capital gain transferred to your children.