The art of making your estate plan matter: Using your superpower as a “wise giver”

Key Takeaways

• Transferring wealth is an act of benevolence, but you shouldn’t do it without considering the type of transaction a gift represents.
• Wise givers will take into account the needs and wants of the recipient as they decide how to give and how much.
• The details of a gift, including how much to give and in what form, will impact the taxes you have to pay and how the recipient will be able to use the funds.

Wealth structuring may not feel like gifting. That’s because it’s generally discussed within the confines of an attorney’s office with a focus on achieving long-term tax efficiency, asset protection and control.

However, there is a way to transfer your wealth wisely and with love. Let’s delve into what it means to be a wise giver.

Gift versus transfer

In estate planning, attorneys often speak interchangeably about gifts and transfers. As a result, it’s easy to overlook important distinctions. After all, a person who has made a significant wealth transfer is generally required to disclose their transaction on a “Gift Tax Return.” The confusion between a gift and a transfer is baked-in.

It’s worth pausing, however, to reflect on the important distinction between whether you are making a gift or a transfer. Generally, dictionary definitions of “gift” will say that you make a gift when you give something voluntarily, without receiving anything in return. Gift-giving is usually a sign of affection, appreciation or honor. A gift therefore carries with it a spirit of intention, generosity and benevolence.

In a different context, we may say that so-and-so “has a gift,” and mean that the person is endowed with a unique talent or attribute. This implies that the gift-giver has a special superpower: the power to convey a blessing.  

On the other hand, a “transfer” has a much more transactional connotation – it’s the simple act of moving property from one place to another.

Take a step back and reflect

Since the enactment of the Tax Cuts and Jobs Act, advisors have been beating a drum, encouraging their wealthy clients to take advantage of historic wealth transfer opportunities. Many clients have acted on this advice, moving significant assets into complex wealth planning strategies intended to achieve key goals of multigenerational tax efficiency and asset protection. Many more will take similar action in the next two years, as the law’s sunset date draws closer. The inflation adjustments that took effect on January 1, 2023 bumped the federal exemptions yet higher, and even the gift tax annual exclusion is getting a boost to $17,000 per year, per recipient. 

However, as we noted earlier, wealth structuring often may not feel like gifting. Strategies may include the use of ownership structures such as holding companies like partnerships or Limited Liability Companies (LLCs), as well as irrevocable trusts, or maybe even charitable foundations. It can feel so impersonal. There may even be talk about “not telling the beneficiary” or limiting the beneficiary’s access to the assets. All of this can obscure the significance of what is actually happening.

But the reality is that most parents and grandparents are making these transfers as a way to maximize the amount of wealth available to help their loved ones so that they can thrive. It’s all from a place of love and care for their children or grandchildren.

The transfer structures and strategies are generally intended to minimize unnecessary waste, (for example, the diminishment of the endowment to taxes and other expenses of probate or estate administration). But as people complete these planning transactions, important considerations about the nature of the blessing the givers wish to impart often fall between the cracks. Hopes and intentions are transmuted into fears and worst-case-scenarios. They are then further silenced by piles of legal documents, tax paperwork and bills for professional services.

Jay Hughes, in his book “The Cycle of the Gift,” challenges people to become “wise givers” before transferring wealth. He also says that receivers should also be prepared to “receive wisely.”

Well-intentioned parents and grandparents often ask, “how much should I give,” to which there is no one-size-fits-all answer. The moment this question arises, the best thing to do is to take a step back. Prepare yourself to be a wise giver and reflect on how you are using your special superpower. That will help you gain clarity about what, how much, and how you should give your gift. 

Reflections for the wise giver

• Who is the recipient or beneficiary of my gift, and what is my relationship with them?
• As an individual trying to “make it” in this world, what has their life journey been like so far?
• What are their hopes and dreams? Are those dreams big or small?
• What do you remember about your own life journey when you were at that stage? What were your dreams? What were you striving for? What was making your life difficult when you were at that age? What do you know now that you could not have understood back then?
• What are your hopes for the beneficiary? Does the beneficiary know what you hope for them?
• How did others invest in you and your success, both financially and non-financially? Which investments made a meaningful and positive impact on your life and why?
• Have you ever received a gift that felt meaningless, or worse, a gift that made a negative impact on your life? In retrospect, what could have made that gift more of a blessing?
• How can you use your financial resources to make a valuable investment in the recipient? How can the returns of your investment be enhanced by sharing your wisdom, time and talent?
• Are there ways to prepare the beneficiary to be a “wise receiver” of the financial gift you are thinking of making?

Answering these questions before you make decisions about the form your gift can make the process easier for you and for the person to whom you give your gift.

IMPORTANT INFORMATION

This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.