How to Gift Your Kids a Financial Legacy For the Holidays

Present on table

The key to gifting your children a financial legacy is to start planning early and often.

Sam Walton, the founder of Walmart, gifted each of his kids 20% of the business when it was just a small five-and-dime store. Now the Walton children are the richest family in America, in part because the estate was not split up when Sam Walton passed away.

So whether you’re wealthy today, or plan to be in the future, now is the perfect time to begin.

And with gift-giving season in full swing, here are three opportunities to gift your children a well-rounded financial legacy.

Where’s the Opportunity?

Legacy Gift #1: Tax-Free Money

Did you know that all gifts, even birthday gifts, are technically taxable? It’s true, but the “exceptions” usually keep you from actually owing any tax.

The biggest exception is that you can gift anyone up to $14,000 per year without triggering a tax event. If you’re married, your spouse can match your gift for a tax-free total of $28,000.

So now may be a good time to give your children some money. (See below for minor children.)

Why? One reason is to beat the estate tax. If your net worth is more than $5.45 million when you pass away, everything above that amount is automatically taxed at 40%.

So gifting each of your kids money is a way to pass on your wealth tax-free. And at $28,000 per year, per child, it can really add up fast.

Think you’re not rich enough? Maybe not yet, but realize that there are 2.5 million small businesses in America worth more than $5 million. Stay with Wealth Factory for a while and you may just own one of them.

And second, the estate tax is constantly changing.

It’s changed more than a dozen times since 2001, and at that time any net worth over $675,000 was taxable at up to 55%! It’s not hard to top $675,000 in net worth when you factor in your real estate, cars and business.

So even though President-Elect Trump wants to get rid of the estate tax for now, there’s no telling whether that will actually happen or for how long it will be.

Therefore it’s wise to be prepared for any scenario, and always have a few tax tricks in your pocket.

A note about minor children: We don’t recommend giving minor children thousands of dollars with no strings attached.

A wiser approach is to utilize a Crummey trust with your child as the beneficiary. The trust documents give you the power to decide whether the money must be spent on education or at what ages they can access the funds.

There are more factors to consider, of course, so talk to an estate planning attorney. Or inquire here about working with our coordinated financial team.

Legacy Gift #2: A Family Trust

Another valuable gift for your children is to finally create your family trust.

A trust will keep your estate out of probate court when you pass away, which is where the whole world gets to watch the courts distribute assets amongst your heirs.

It’s public record forever.

And the last thing you want is some lawyer searching for a reason to sue your kids because they know what irresistible assets they inherited.

So a trust creates privacy that your children will learn to appreciate.

A trust also lets you take control of how your assets are distributed. Most probate courts will simply distribute shares of your estate to heirs if they’re over 18 (or once they are 18).

But a trust can be written to have stipulations, guidelines and incentives to make sure money is only distributed to heirs who are making wise decisions. Or to release portions of the estate over time as your heirs get older and more responsible.

Plus there’s a tax advantage: If you keep assets in a trust for the benefit of your children, rather than actually transferring ownership to your children, then you avoid triggering another tax event.

Legacy Gift #3: A Statement of Purpose (No Money Required)

Do you want to pass on more than just money to your heirs? Then consider writing a “Statement of Purpose” as a gift for your children this year.

A Statement of Purpose is your entire life philosophy and wisdom distilled into one document so that it can be reread and utilized for generations to come.

Garrett Gunderson, our Chief Wealth Architect, wrote a 51-page Statement of Purpose and officially added it to the beginning of his family Trust documents. It shares his wisdom on finances, business, health, character, intellectual pursuits, relationships and more.

Garrett has written several books now, including a New York Times best seller, but he says his Statement of Purpose is the most important book that he’s ever written. Because now he’s leaving an intellectual legacy for his kids that goes beyond just money.

What To Do Next

Again, it’s never too early to start gifting a financial legacy to your kids — even if it’s just your wisdom.

So consider starting today with this 3-step action plan:

  1. Give your children a legacy gift this holiday season. Talk to your estate planning attorney about gifting your children tax-free money or starting a family trust. Or start writing your Statement of Purpose, you don’t need money or an estate planning attorney to do that.
  2. Give the gift of knowledge. A subscription to our premier wealth-building publication, BUILD:, is 50% off right here. Buy a 52-week subscription for yourself and/or a loved one and spend the next year building wealth with us.
  3. Don’t have an estate planning attorney? Then resolve to get your financial team in place in 2017. If you need help, you can inquire about our team of coordinated financial experts right here.

That’s it for this week.

Build the life you love,

The Builders at Wealth Factory

What is Living Wealthy Weekly?

Each week we share timely trends, news stories, and current events that affect your life. We help you see the impact, personally and socially, and give you possible solutions to avoid any negative effects. We also give you additional links and resources if you want to investigate further. The purpose is not to be the last word on any topic. Rather it’s to help us all stay informed of what’s going on in the world without letting those events negatively impact your lifestyle. Our goal is to help us all live richer, fuller lives from a position of financial strength. This allows you to weather economic hard times, and seize whatever new opportunities arise in our changing world.

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