What Is Involved in Efficient Wealth Transfer?

Wealth transfer
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Wealth transfer can be complicated by a number of factors.

Not everyone has a job earning them large sums of money each year.

This does not necessarily mean they will have fewer assets to transfer.

Rather, many build their wealth through wise money management over the course of their careers.

Think Dave Ramsey.

According to a recent Forbes article titled “Top 7 Tax Mistakes Made in Planning a Wealth Transfer,” all of this careful planning could be lost through careless mistakes.

An effective wealth transfer requires planning.
Both wealth accumulation and wealth transfer require strategic planning.

It is likely you did not budget, save, and invest just to pass much of what is left at death to the government rather than to family, friends, or charitable organizations of your choosing.

Unfortunately, this “unintended consequence” is all too common.

What are some common wealth transfer mistakes to avoid?

Forgetting about IRD Taxes.

Perhaps you have not heard of the IRD tax.

IRD is short for “Income in Respect of the Decedent.”

What is it exactly?

This is the income tax levied on inherited tax-deferred assets and paid by your heirs.

Tax-deferred assets include 401(k)s, annuities, and traditional IRAs.

When receiving an inheritance, your heirs may be bumped into a higher tax bracket as a result.

How can you minimize this tax burden for your loved ones?

You will want to strategically plan in advance for these assets.

One means is to allocate these IRD assets to charity outright or through a Charitable Remainder Trust.

With a Charitable Remainder Trust, you can essentially create a charitable “stretch” IRA for your grandchildren and children.

Making Charitable Giving Mistakes.

This mistake is related to the previous one.

All too often charitable gifts are made from after-tax assets, instead of highly-appreciated assets.

To be more efficient, you can gift highly-appreciated real estate, securities, and business interests.

Doing so serves the dual purpose of securing a charitable tax deduction and eliminating capital gains taxes.

Dying without a Comprehensive Estate Plan.

Having no estate plan is especially devastating for the loved ones of those who die.


Because there is no way to fix the problem at that point.

Unfortunately, about 75 percent of Americans die without a last will and testament.

With a last will and testament, you can direct assets to heirs through probate.

If you want to minimize or eliminate the time you spend in probate, as well as the amount owed in estates taxes through your wealth transfer, you will need to work with an experienced estate planning attorney to create a comprehensive estate plan.

Failing to Identify or Update Beneficiary Designations.

Several assets pass directly to heirs through beneficiary designations.

By failing to place names of your desired heirs on these accounts or failing to update the designations when your wishes or relationships have changed, you can either initiate a wealth transfer to the wrong party or trigger the loss of a further income tax deferral at your death.


In addition to having a primary beneficiary, you should also have contingent beneficiaries in place should something happen to the primary beneficiary and you are unable to secure the update before you die.

Without a viable beneficiary named, the assets will enter probate and may lead to what could have been otherwise avoidable IRD taxes.

Titling Business Interests Improperly.

In general, a business tends to only be titled in the name of the spouse who owns and operates it.

Without succession planning for the eventual death and incapacity of the owner, the business could be tied up in expensive probate proceedings and suffer in its day to day business operations.

Bad Choices for Ownership and Beneficiary Designations on Life Insurance.

A beneficial wealth transfer tool is life insurance because it provided liquidity when needed most.

Without strategically choosing your beneficiaries, you may subject these benefits to gift and/or estate taxes.

An irrevocable life insurance trust can minimize the estate tax liability.

Giving the Wrong Assets to your Heirs.

Considering what assets go leave to each heir is a key aspect of estate planning.

By simply giving a portion to each heir, regardless of the asset, you can leave your heirs with significant tax bills.

Be specific when planning your wealth transfer.

If you want to be a “voluntary philanthropist” and “disinherit” the government, then IRD assets are optimal choices for charities while non-IRD assets are better for heirs.

With careful planning, you can be more efficient in your wealth transfer to the next generation.

Reference: Forbes (Dec. 15, 2021) “Top 7 Tax Mistakes Made in Planning a Wealth Transfer”

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