Are you considering how to transfer your wealth to your heirs and the next generation? It might seem simple enough to leave your assets and wealth to them in a will, but doing so may trigger exorbitant taxes that eat away at the wealth you built over a lifetime (or several generations). A high-net-worth family needs unique strategies to reduce taxes, and there are several kinds.
Here are some of our best tips to help you maximize your existing assets and cash, passing them on to the next generation with minimal spending to the IRS.
Lifetime Gifting
There are two main ways to transfer funds directly from your accounts to your child’s account by simply handing over cash. These can be great ways to help a child out with an annual gift or even fund their next venture. Think carefully about how you would like to apply these lifetime gifting opportunities.
First, there are annual exclusion gifts for times when you want to simply and directly transfer the money to someone else. In 2026, you can give up to $19,000 per person (or $38,000 for couples). Because this is a sizable target, you can transfer significant wealth over time without touching the lifetime exemption.
Alternatively, you could use intra-family loans. The IRS Applicable Federal Rate (AFR) can be used to fund a child’s business or real estate purchase, keeping the “spread” between the low interest rate and the asset’s growth within the family.
Charitable Giving
Philanthropy is often an integral part of creating a financial legacy for high-net-worth families. As a bonus, charitable giving often offers substantial tax benefits through deductible donations. The savviest way to give is typically more planned and structured than simple cash donations, though.
A charitable remainder trust (CRT) offers immediate tax benefits upon formation. Deductions up to 60 percent of AGI for cash donations (30 percent AGI for assets) can keep you from paying too much out of pocket to the IRS on a particularly profitable year. You also skirt capital gains taxes on the appreciated assets contributed to the trust.
Plus, a CRT still allows you to give generously to loved ones. Your beneficiary will receive a payout for the set term (or for the rest of their life).
After you pass, the loved ones you leave behind continue to experience benefits. The money and assets in the trust do not have to go through probate and are never considered public knowledge. They are also inaccessible to creditors and lawsuits if your beneficiaries engage in risky business or reckless spending.
Income Tax Efficiency
Unfortunately, there are so many ways that the government can lay claim to the money you earn, invest, and protect for the next generation. Consider preparing your child for this hefty tax bill by paying it for them with a Roth conversion on IRAs that they will inherit.
Parents are allowed to pre-pay the tax for their children during the conversion, allowing their heir to inherit the income tax-free. You do not necessarily have to prepay this all at once. Some parents might convert small chunks over time during years when they are in a lower tax bracket or before they start taking required minimum distributions.
Leveraging the step-up in basis can also save the next generation on capital gains. These taxes are triggered when appreciated assets are sold, triggering taxes based on the difference between the initial purchase price (cost basis) and the sales price.
Assets that receive a step-up in basis will be passed on, with the cost basis reset to the current fair market value, significantly reducing capital gains for long-term appreciated assets.
Family Governance and Entity Structuring
For many high-net-worth families, a business may be a factor in wealth accumulation. Moving some of your business assets to an heir can be a lengthy process, made easier with the use of Family Limited Partnerships (FLPs) or LLCs. This structure allows businesses to apply valuation discounts. These discounts have less marketability and control, allowing families to pass business interests at a lower gift tax cost.
You may also use the “Family Office” approach when it comes to filing taxes at the conclusion of your fiscal year. Moving from individual tax returns to a coordinated family entity to optimize state and local tax (SALT) deductions.
Education and medical expenses can serve as convenient tax hedges while providing essential help for the next generation. Paying these expenses directly to providers renders them tax-free. This type of spending qualifies for an unlimited gift-tax-free transfer that will not count toward your annual gifting limit. Just make sure you pay the educational or medical institution directly, rather than write a check to your child.
Get Generational Help from Magellan
Reducing taxes from generation to generation requires a long-term vision and a clear plan. Many of the above strategies require multiple experts to set up and coordinate. For example, you will need an attorney to set up a trust. To get the most out of your plan, it is always best to coordinate your tax, financial, and legal advisors so they work together toward a common goal.
Magellan provides all of the services you need to develop your plan and implement it smoothly. We communicate and oversee every step of the process, no matter where your family might be right now. Contact us today to schedule your consultation!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group.