financial planning Paramus

Tax-Efficient Wealth Transfer Strategies in the Garden State

Transferring wealth comes with complications, from making sure assets are distributed according to your wishes to avoiding probate and family disputes. However, the process becomes even more complex when taxes enter the equation.

A tax-efficient approach to wealth transfer can reduce your heirs’ tax burden, allowing them to benefit more fully from your legacy. Without careful planning, much of your estate may go to taxes, leaving less for beneficiaries.

At Breakwater Capital Group, a fee-only fiduciary financial advisory firm, we’re dedicated to putting our clients’ needs first. With over five decades of experience, we serve clients across the U.S. with offices in Paramus, NJ, Denver, CO, and Boston, MA.

This blog explores key strategies for tax-efficient wealth transfer for individuals nationwide and addresses some considerations for Paramus residents.

Building a Legacy: Effective Wealth Transfer Strategies

Many are concerned about the risk of assets becoming tied up in probate. Some mistakenly believe that having a basic will avoids probate, but in reality, it generally requires the estate to go through the probate process.

While probate costs vary across the country and tend to be lower than the national average in New Jersey, the process can still lead to delays, loss of privacy, administrative burdens, and restricted access to funds for beneficiaries.

Here are strategies to help reduce probate issues and ensure your wishes are honored.

Transfer on Death (TOD) Designations

Transfer on Death (TOD) accounts allow assets to pass directly to a named beneficiary, avoiding probate and expediting distribution. Available through many financial institutions, TOD designations simplify wealth transfer and reduce legal complexities, making them a valuable tool for financial planning in Paramus.

Beneficiary Designations

Naming beneficiaries on retirement accounts like 401(k)s or IRAs is an effective way to simplify wealth transfer. Regularly review your primary and contingent beneficiaries, especially after major life events, to verify the right people are listed. Outdated or missing designations can lead to unintended consequences and complications for your heirs.

Living Trusts

A living trust is a legal document that outlines how your assets should be managed and distributed, making it an effective tool for transferring wealth while avoiding probate. Unlike a will, which becomes public and must go through probate, a living trust enables a private, streamlined transfer of assets.

Living trusts also allow you to specify precisely how and when your assets should be distributed, giving you more control over the process. A crucial step in setting up a trust is funding it—transferring and renaming assets to ensure they’re included.

Business Succession Planning

If you own a business, have you considered succession planning? A well-structured plan provides for a smooth transition of leadership and ownership, helping to preserve the company’s value while minimizing taxes—benefiting both heirs and employees.

Strategies for Tax-Efficient Wealth Transfer

For high-net-worth individuals, the potential impact of estate taxes on wealth transfer is a key consideration. Under current tax laws, the federal estate tax exemption allows individuals to transfer up to $13.61 million in 2024 and up to $13.99MM in 2025 without incurring federal estate taxes.

However, this exemption will revert to approximately $7 million in 2026 unless Congress acts to extend it. With a 40% tax rate on amounts above the exemption, this change could affect high-net-worth individuals in Paramus and beyond, highlighting the importance of tax-efficient wealth transfer strategies.

While the laws enacted in 2017 as part of the TCJA could be rolled back, thus lowering the Federal estate tax, it will be important to monitor legislative efforts to make the changes permanent or to make other changes. There have been efforts to modify the state and local tax deduction cap, currently set at $10K. This would have a greater impact on high-tax states like New Jersey, New York, and Connecticut.

While it’s true that New Jersey scrapped its estate tax back in 2018, the state still imposes an inheritance tax on assets that are left to different classes of beneficiaries. For example, children and grandchildren are exempt from the inheritance tax, while a niece’s or close friend’s inheritance could be taxed at rates as high as 16%. While hanging on to assets for lineal descendants may make sense for others gifting while you are living can help you avoid the tax creep at the end of your life.

Here are strategies for minimizing estate tax and income tax liabilities while efficiently transferring wealth.

Irrevocable Life Insurance Trusts: ILITs remove life insurance proceeds from your taxable estate, potentially reducing the tax burden on your heirs. This trust also provides flexibility in controlling how and when funds are distributed.

Charitable Remainder Trusts: CRTs combine charitable giving with estate planning by providing an immediate tax deduction and tax-deferred growth on transferred assets. After an income period, the remaining assets go to your chosen charity, supporting your causes and reducing estate and income taxes.

Lifetime gifting: The annual gift tax exclusion allows you to gift up to $17,000 per recipient each year without affecting your lifetime exemption, gradually reducing your taxable estate and helping heirs avoid higher estate taxes.

Donor-Advised Funds: DAFs provide an immediate tax deduction and flexibility to make charitable donations over time, aligning giving with long-term tax planning goals.

Roth IRA conversions: Converting traditional IRA funds to a Roth IRA can reduce future tax burdens for heirs, as Roth IRA distributions are tax-free for beneficiaries.

Qualified Charitable Distributions: For those 70½ or older, QCDs let you satisfy RMDs by donating IRA funds to charity, reducing your taxable income.

Whether in Paramus, New Jersey, or another location, Breakwater’s team is ready to help you navigate these advanced tax and estate planning solutions.

How a Fiduciary Financial Advisor Helps With Tax-Efficient Wealth Transfer

With so many moving pieces involved in wealth transfer, consulting professionals can make the process smoother and more effective.

A fiduciary financial advisor is legally bound to act solely in your best interest, placing your needs above all else. This commitment is essential in wealth transfer, where the focus is on providing strategies tailored to your financial goals—not on commissions from financial products.

In addition to financial guidance, working with an experienced estate planning attorney is necessary to manage the legal documentation. Together, a fiduciary advisor and attorney can structure a comprehensive estate plan that aligns with your wishes.

An experienced team like Breakwater’s will assess your unique situation, consider all viable strategies, and develop a personalized wealth transfer plan that balances your financial objectives with tax efficiency.

Breakwater’s Nationwide Reach and Financial Planning in Paramus

When we formed Breakwater Capital, our goal was to offer a refreshing alternative to large Wall Street firms burdened with high overhead and complex fee structures. With thousands of hours dedicated to specialized financial knowledge, our team is equipped to provide high-quality advice and services.

We proudly offer expertise across the country, including fee-only financial planning in Denver, personalized guidance from our Boston, MA, wealth management team, and knowledgeable financial planning advisors in Paramus.

Whether navigating estate taxes, planning charitable contributions, or exploring business succession options, Breakwater Capital Group is here to support you with a client-centered approach tailored to your goals.

Contact us today to schedule a consultation and learn how we can help you secure your financial legacy for future generations.

Choosing the right advisor

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Breakwater Team

At Breakwater Capital, we work with families across the United States, providing each client with a personalized experience tailored to their current circumstances, future goals, and timelines.