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Multi-Generational Family Wealth Transfer

overview

Develop investment strategy and estate plan for $20mn of liquidity, balance RMDs with taxes, minimize future estate taxes.

Considerations

Generate tax-efficient income from assets, which would become spouse’s primary source of income, while also avoiding federal estate taxes.

The Situation

After the unexpected death of a family’s patriarch the surviving spouse faced a significant wealth transition. She now had $20 million in liquidity spread across cash, highly concentrated positions, and her existing wealth strategy. These assets were divided between retirement and taxable accounts, raising additional concerns about the tax implications for both her and her heirs.

The Strategy

A new holistic investment and estate plan was needed. Our team worked to develop an integrated plan that prioritized income, protected long-term family goals, and carefully considered estate tax exposure.

Importantly our team had to consider:

 

  • This wealth now became the spouse’s primary source of income (vs. income previously generated from the patriarch and their business interests).
  • The husband’s federal estate exemption had been nearly fully used, leaving only $1 million of the federal exemption portable to the surviving spouse.
  • The surviving spouse wanted to preserve wealth for the next generation, as well as strategically begin gifting it to them during her lifetime.
  • The estate included over $9 million in qualified assets, which would eventually pass to her adult children (who were already in high tax brackets and likely to face significant taxes on inherited IRAs).
  • There were significant embedded capital gains in many positions, which the family did not want to have to realize.
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The Investment Plan

The investment strategy was spread across all accounts, with a focus on the investments being made tax-aware into each of the client’s accounts. The final allocation needed to include:

  • Traditional fixed income with municipal bond exposure
  • Structured credit and short-duration private credit strategies
  • Real assets and private real estate investments with income distribution
  • Public equities for growth, but more risk-managed and globally diversified

This blend was designed to provide reliable income, low correlation to equity markets, and the flexibility to sell or borrow against the portfolio if major expenses arose.

The Income Plan

To generate sufficient income without pushing the surviving spouse into higher tax brackets, our team developed a withdrawal and spending plan that:

  • Balanced withdrawals from qualified accounts across taxes and future inheritance: We optimized distributions from IRAs (above RMDs) for the spouse’s tax obligations, as well as to spend down the qualified accounts and reduce the eventual tax burden on heirs.
  • Selected tax-efficient investments in taxable accounts: Investments were diligence and used to include vehicles that generated passive losses (through K-1s), qualified dividends, and a focus on long-term capital appreciation to help offset taxable income.
  • Smoothed income: We structured annual income targets to remain within optimal brackets, preserving eligibility for deductions and tax credits while avoiding unnecessary tax spikes.

Most importantly, the income plan allowed the spouse to earn nearly $1 million of annual “income”, but with a limited amount of ordinary income, which helped control tax obligations.

The Estate Plan

With a limited remaining exemption and a desire to preserve assets for her children, we worked alongside the family’s legal counsel to design an estate plan that included new asset titling and a Family Trust. Importantly, the structure we used ensured the surviving spouse retained access to these funds during her lifetime.

 

The Family Trust was established with a goal to gradually transfer assets out of the taxable estate. By moving approximately $7 million into the trust it was estimated to reduce future estate taxes by up to $2.6 million.

 

To minimize the burden on her heirs a partial Roth IRA conversion was utilized to move assets out of a Traditional IRA. By doing so we reduced her RMD requirements, thereby helping to control her tax burden.

The Outcome

We implemented our plan gradually across the client’s entire portfolio, making sure to minimize any tax costs of implementation. The final approach helped the client:

  • Generate reliable, tax-efficient income
  • Preserve optionality and liquidity of her assets
  • Minimize taxes across accounts
  • Reduce long-term estate tax exposure
  • Lower the ultimate inheritance tax implications for her children

Liquidity alone does not create financial security. It requires a thoughtful plan, especially for families navigating generational wealth transitions. This case highlights the importance of integrating investment strategy, income strategy, and estate design into a comprehensive financial plan that considers both income needs and long-term tax exposure.

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