What Is a Wealth Transfer?

What is a Wealth Transfer?

When thinking about retirement, it’s common to ponder about how we will want to leave something for loved ones once we are no longer here. Of course, there are many aspects to this issue: lowering taxes for heirs to pay, protecting assets from legal risk, keeping family conflict to a nil, and more.

In estate planning, this is known as planning for a wealth transfer. If you haven’t heard of it before, wealth transfer simply refers to the process of passing wealth from someone who has died over to their beneficiaries.

Effective wealth transfer can be done through a variety of strategies, including annuity contracts or life insurance policies, wills, trusts, and gifts of cash or tangible assets prior to death. The typical goals for wealth transfer strategies are to maximize the estate assets that are left behind as a legacy to heirs and to make the transfer as tax-efficient as possible.

Using Life Insurance for Wealth Transfer

Single-premium life insurance is a common tool in the wealth-transfer toolkit. Clients who own liquid assets that they don’t plan to use during their lifetime can use this form of insurance to leverage their bequests to heirs.

For example, someone has $200,000 in a CD that they plan to pass on to their children. They could cash the CD in and use the proceeds to purchase a single premium life insurance policy. At death, the life policy will pay proceeds to heirs that will be greater than the CD money alone would have given them.

What About Wealth Transfers Subject to Estate Tax?

People with large estates subject to estate tax can also use life insurance to cover the cost of those taxes. They can explore options for using a trust and purchase a life insurance policy inside the trust that will pay out when they die.

The death benefit won’t be counted as an asset of the insured at the time of death, provided that certain conditions are met.

Just as in the example given above, the death benefit from life insurance is generally exempt from income taxes. This is true regardless of who owns the policy or who receives the death benefit.

There can be an exception to this when a life insurance policy is purchased by a corporation. However, that doesn’t apply to the vast majority of life insurance policies today.

Do Annuities Make Sense for a Wealth Transfer Strategy?

What about those who can’t pass through underwriting for life insurance? Or perhaps they already hold enough life insurance coverage to the point where life insurers will be hesitant to issue new, additional coverage for them.

Whether you fall into a situation like this or simply want some reliable protection for assets that you won’t use in retirement, annuities are another tool for wealth transfer. They aren’t exempted from income tax as life insurance is, but they do protect assets from creditors.

Moreover, annuities are also exempt from the probate process. What about when you want to leave a larger legacy than what is held in the annuity contract?

Maximizing Legacy Assets with Enhanced Annuity Benefits

Good news here, some annuity contracts come with an enhanced death benefit option. The enhanced death benefit will pay out proceeds that are a multiple on the value of the annuity money at time of death. For example, some contracts with an enhanced benefit rider will increase the death benefit that the heirs would otherwise receive by 30%.

In other cases, an annuity death benefit will pay out the highest value that an annuity contract ever reached in its duration. Other annuities come with similar features that can also deliver enhanced death benefits in unique ways.

Your financial professional can walk you through different options if this is of interest to you.

Keep in Mind These Other Practical Tips

So, what else are some good pointers to keep in mind when planning for an efficient wealth transfer? Any good estate plan will usually require the following documents, listed below, to be drawn up.

Don’t forget to consult with high-quality estate planning counsel and tax professionals as you navigate this process. You might be able to obtain referrals from your financial professional.


This document guides the decedent’s assets through the probate process. It dictates who will take custody of any minor children or other dependents.

Living Wills

A living will specifies the medical conditions under which the author would like to be taken off of life support. This can help with providing clarity on an already-sensitive issue for loved ones.

Revocable Living Trusts

A revocable living trust is a separate legal entity that can buy, sell, and manage property that is put into it by the grantor. The grantor creates the trust and then names one or more trustees to manage the assets in the trust.

The beneficiary receives the income that is generated by the trust in most cases, unless otherwise specified in the provisions of the trust. The grantor, trustee, and beneficiary are often the same person or couple, at least while both are living.

All assets that are titled in the name of the trust are unconditionally exempt from the probate process, so that all of these assets will pass quickly and efficiently to their intended beneficiaries.

Some trusts are titled as revocable, which means that they can be changed or modified according to the wishes of the grantor after they have been established. Some trusts are irrevocable, so that assets that are placed inside them aren’t counted as part of the grantor’s taxable estate.

Durable and Medical Powers of Attorney

These documents allow a designated person to handle the grantor’s assets. It also permits the designated person to make medical decisions on the grantor’s behalf in case they become incapacitated for any reason.

A durable POA allows the designee to pay bills and handle other everyday business on the grantor’s behalf while the grantor is recovering from their trauma or accident.

Letter of Instruction

This handy document can make any estate executor’s life much easier. This document has no legal authority, but it lists out practical items for key estate planning functions.

These can include:

  • Where to find the keys for the grantor’s RVs and other vehicles
  • Login information for the grantor’s financial accounts
  • Contact information of the grantor’s financial advisor, attorney, tax consultant, and insurance agent
  • Directions to the location of any other assets, such as a vacation home

Effective Wealth Transfer Planning Gives Protection and Peace of Mind

Estate planning isn’t just for the super wealthy. Virtually everyone needs most, or all, of the documents above in order to protect themselves and their heirs in the event of an emergency (or tragedy).

A well-thought-out estate plan can ensure the smooth and quick transfer of your wealth in the manner that you prescribe. Consult your financial advisor for more information on estate planning and how it can benefit you.

What if you are looking for a financial professional to guide you in these matters? Or perhaps you are looking for assistance with overall retirement planning or want a second opinion of your existing financial plan.

For your convenience, many experienced and independent financial professionals are available to help you at SafeMoney.com. They aren’t beholden to any one insurance or financial services company, so they are able to offer solutions that best fit your personal situation.

You can get started by visiting our “Financial Professional” section and connecting with someone directly. In your initial appointment, you can discuss your goals, concerns, and situation and explore a working relationship. Should you need a personal referral to someone, please call us at 877.476.9723.

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