Passing Wealth With Purpose: A Guide to Multigenerational Gifting and Planning

Key Takeaways:

Multigenerational wealth transfer often starts with deciding whether to give assets during your lifetime or leave them through your estate, a choice that affects both estate taxes and capital gains taxes.
In 2026, an individual can generally give up to $19,000 per recipient ($38,000 for a married couple) without using any lifetime gift and estate tax exemption, according to the IRS.
Assets gifted during life generally keep the donor’s original cost basis, while inherited assets generally receive a basis equal to their fair market value at the date of death.
Trusts can set rules for how and when transferred assets are used, while custodial accounts generally give the child full control once the custodianship ends under state law.
529 plans, custodial accounts, and Trump Accounts serve different purposes, from education funding to flexible support to long-term investing for a child.

General Disclaimer: This article is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Raffa Investment Advisers is a registered investment adviser. Each individual’s and family’s financial situation is unique. Please consult with a qualified investment professional, and with your tax advisor or legal counsel on tax and estate questions, before making financial decisions.

From lifetime gifts and estate tax considerations to trusts and investment accounts, transferring wealth thoughtfully requires more than deciding how much to give.

As the holidays approach, many parents and grandparents are thinking about how to give meaningfully to the next generation. For families who have spent decades building and preserving wealth, however, the most valuable gifts may have little to do with what’s under the tree. Transferring wealth to children and grandchildren presents an opportunity to support their futures, establish a lasting financial legacy, and potentially reduce future estate tax exposure. But deciding when to give, which assets to transfer, and how much control to retain can be just as important as the amount itself. This

This article covers common questions such as:

Should you transfer wealth now, or leave it through your estate?
How much can you give and what are the tax implications?
How much control should you retain over transferred assets?
Where do 529 plans, custodial accounts, and Trump Accounts fit?
How does wealth transfer fit into your broader investment and estate strategy?

The answers depend on more than tax efficiency alone. They require balancing generosity with financial security, investment considerations, and the long-term needs of the people you’re hoping to support.

Question 1: Should You Transfer Wealth Now or Leave It Through Your Estate?

One of the first decisions in multigenerational wealth planning is whether to transfer assets during your lifetime or allow beneficiaries to inherit them later through the estate. The answer depends on your estate’s size, the assets involved, anticipated appreciation, applicable tax rates, and your family’s circumstances.

Lifetime gifting can provide meaningful benefits. It allows you to see the impact of your generosity, support loved ones when they may need it most, and potentially remove future asset appreciation from your taxable estate.

Consider a family with a $500,000 investment portfolio earmarked for the next generation. If those assets appreciate to $900,000 over time, transferring them earlier through a properly structured completed gift may remove that future $400,000 of appreciation from the donor’s estate. For families facing potential estate tax exposure, that can be a powerful planning consideration.

But there’s an important trade-off: the income tax basis of the assets being transferred.

When appreciated securities are gifted during life, the recipient generally assumes the donor’s original cost basis for purposes of calculating a future gain. In contrast, appreciated assets inherited at death generally receive a new cost basis equal to their fair market value at the date of death, subject to exceptions.

Suppose you own shares currently worth $500,000 that you originally purchased for $150,000. If you gift those shares today, your beneficiary will generally inherit your $150,000 basis. A subsequent sale for $500,000 could result in a $350,000 taxable capital gain. If the beneficiary instead inherits the shares when they’re worth $500,000, the basis would generally adjust to that value, potentially eliminating the capital gain that accrued during your lifetime. This creates a fundamental planning question: Is the potential estate tax benefit of transferring assets today greater than the income tax benefit of retaining them until death?

For some families, gifting cash or high-basis investments may be more advantageous than transferring highly appreciated securities. For others, removing future appreciation from a potentially taxable estate may outweigh the loss of a future basis adjustment.

The IRS explains these distinctions in Publication 551: Basis of Assets and Publication 559: Survivors, Executors, and Administrators.

Key Takeaway: Giving sooner isn't automatically better. The timing and type of assets transferred can have lasting implications for both estate taxes and capital gains taxes.

Question 2: How Much Can You Give, and What Are the Tax Implications?

For families considering substantial lifetime gifts, understanding the federal gift and estate tax framework, such as the annual gift exclusion and any tax implications is essential.

The good news is that making a gift above the annual exclusion doesn’t necessarily mean you’ll owe gift taxes.

The Annual Gift Tax Exclusion

In 2026, an individual can generally give up to $19,000 per recipient without using any of their lifetime federal gift and estate tax exemption. For married couples, that amount can generally reach $38,000 per recipient, assuming both spouses’ exclusions are available and applicable requirements are met.

Because the exclusion applies separately to each recipient, families with multiple children or grandchildren can transfer meaningful amounts over time. Consider grandparents with four grandchildren. Together, they could potentially give $38,000 to each grandchild in 2026, transferring a total of $152,000 without using their lifetime exemption, assuming the gifts qualify for the annual exclusion.

Repeated over many years, a coordinated gifting strategy can transfer substantial wealth and its future investment growth to younger generations.

What If You Want to Give More?

For 2026, the federal basic gift and estate tax exclusion is $15 million per individual. Gifts exceeding the annual exclusion may generally reduce the donor’s remaining lifetime exemption rather than immediately triggering a gift tax payment. A federal gift tax return, Form 709, may be required even when no tax is due.

This distinction is particularly relevant for families considering larger gifts, such as funding an irrevocable trust or transferring a meaningful investment portfolio to the next generation.

It is also important to consider state-level estate or inheritance taxes, which may apply at significantly lower thresholds than the federal estate tax.

Two Additional Planning Opportunities

Direct tuition and medical payments: Payments made directly to qualifying educational institutions for tuition or to medical providers for eligible expenses can generally qualify for an unlimited federal gift tax exclusion. These payments must meet specific requirements and are different from simply giving the money to a family member to pay the bill.
Accelerated 529 contributions: Special rules allow eligible donors to elect to treat a large 529 contribution as though it were made ratably over five years. Based on the 2026 annual exclusion, one donor could generally contribute up to $95,000, or two spouses up to $190,000, for a beneficiary under this election, subject to reporting and other requirements.

For additional information, see the IRS Gift Tax FAQs and Form 709 Instructions

Key Takeaway: Gift tax rules create opportunities to transfer wealth systematically, but the right approach depends on the size of your estate, the intended recipients, and how much flexibility you may need in the future.

Question 3: How Much Control Should You Retain Over Transferred Assets?

How much control to keep over a gift generally depends on how prepared the recipient is to manage it, since an outright gift transfers control right away while a trust or custodial account can delay or limit it.

For many families, this is important, as the question isn’t simply whether they can afford to make a substantial gift. It’s whether the recipient is ready to manage it.

An outright gift gives the recipient ownership and generally allows them to decide how the assets are used. That may be appropriate for an adult child with established financial habits and clear goals.

But what about a grandchild who is still a minor? Or an adult beneficiary who may need support over many decades? This is where the structure of a gift becomes especially important.

Outright Gifts vs. Trusts for Children and Grandchildren

A trust versus an outright gift isn’t automatically the best solution for every family as its value depends on what you’re trying to accomplish and whether the structure justifies the additional cost and complexity.

An irrevocable trust can allow families to transfer assets for the benefit of children or grandchildren while establishing rules for how those assets are managed and distributed. A trustee can oversee investment decisions and distributions, potentially helping preserve assets for beneficiaries who may not yet be prepared to manage substantial wealth independently. Depending on its design, a trust may provide for educational expenses, healthcare needs, housing support, or distributions at specified ages or milestones. Properly structured trusts may also provide estate tax benefits, continuity of investment management, and varying degrees of protection from creditors or other financial risks.

However, those benefits come with added complexity. Trusts involve legal expenses, administration, potential income tax consequences, and important decisions about trustee selection and distribution authority.

What About Custodial Accounts?

UGMA and UTMA custodial accounts offer a simpler way to transfer assets to minors. An adult manages the assets as custodian until the child reaches the age specified by applicable state law.

These accounts can hold cash and eligible investments, but contributions are generally irrevocable, and the child ultimately gains control of the assets.For a modest gift, that may be entirely appropriate. For a substantial transfer intended to support a beneficiary over decades, a custodial account may provide less control than the family wants.

Key Takeaway: Transferring wealth and transferring control don't always have to happen at the same time. Choosing the right structure can help align financial support with a beneficiary's maturity, needs, and long-term interests.

Question 4: Where Do 529 Plans, Custodial Accounts, and Trump Accounts Fit?

529 plans, custodial accounts, and Trump Accounts each fit a different goal: 529 plans generally fund education, custodial accounts offer flexible support for a minor, and Trump Accounts are designed for long-term investing for a child.

Once you’ve established your broader objectives, specific accounts can help implement different parts of the strategy. These tools aren’t interchangeable. Each offers a different balance of tax treatment, investment flexibility, control, and access.

Comparing the Options

	529 plan	UGMA/UTMA account	Trump Account
Primary purpose	Education funding	Flexible financial support	Long-term investing
Tax treatment	Tax-free growth and qualified withdrawals	Taxable investment income; kiddie tax may apply	Tax-deferred growth; special IRA rules
What can be contributed?	Generally cash	Cash and eligible securities or property	Generally monetary contributions
Investment flexibility	Plan investment menu	Broad range of eligible investments	Qualifying U.S. equity index funds during childhood
Control	Generally retained by account owner	Custodian until state-defined age	Child's account, overseen by an authorized adult during childhood
Access	Qualified education expenses and other permitted distributions	For child's benefit; unrestricted after custodianship ends	Generally restricted during childhood; IRA rules thereafter
Key planning consideration	Education-oriented tax advantages	Eventual transfer of control	Long-term restrictions and future taxation

529 Plans: Targeted Education Funding

For families prioritizing education funding, 529 plans remain a useful planning tool. Investment earnings can grow tax-deferred, and qualified withdrawals are generally federal income tax-free. Certain states also offer income tax benefits for contributions. Additionally, the account owner generally retains control over investment selections and distributions, and eligible beneficiary changes may provide flexibility if educational needs change.

The ability to accelerate five years of annual-exclusion gifts (529 plan superfunding) also makes 529 plans worth considering for grandparents who want to fund education meaningfully without transferring unrestricted control to a minor.

Under specified conditions, unused 529 funds may also be rolled into the beneficiary’s Roth IRA, subject to a $35,000 lifetime cap, annual contribution limits, and other requirements.

Learn more: IRS Publication 970: Tax Benefits for Education.

Custodial Accounts: Flexibility with an Eventual Transfer of Control

Custodial accounts, such as UGMA and UTMA accounts can hold a broader range of assets and generally permit expenditures for the child’s benefit beyond education, but they don’t provide the same tax-free investment growth as 529 plans.

Income and realized gains may be taxable to the child, with the kiddie tax potentially applying to certain unearned income. More importantly, the assets legally belong to the child, and control transfers when the custodianship ends.

For larger wealth transfers, families should carefully consider whether that outcome aligns with their intentions.

Learn more: IRS Publication 550: Investment Income and Expenses.

Trump Accounts: A Newer Tool With a Different Purpose

A Trump Account is a special type of traditional IRA for an eligible child under 18 with a valid Social Security number. The account can be established for children who don’t qualify for the federal contribution. These accounts have received considerable attention, particularly because of the one-time $1,000 federal contribution available to qualifying U.S. citizen children born from 2025 through 2028. But these accounts are fundamentally different from education savings plans and ordinary custodial investment accounts.

During childhood, contributions from individuals and certain employer sources are generally subject to a combined $5,000 annual limit, with specified government and other qualified contributions treated separately. Investment choices are restricted to qualifying low-cost funds tracking broad indexes of primarily U.S. companies. Distributions are generally prohibited during the special growth period. Once that period ends, traditional IRA rules generally apply, including potential income taxes and early-distribution penalties.

For affluent families, Trump Accounts may provide an additional long-term savings opportunity, but they are unlikely to serve as the primary vehicle for transferring substantial family wealth. They also don’t replace the planning flexibility of trusts, the education-specific advantages of 529 plans, or the broader estate planning decisions that often accompany significant gifts.

Learn more: IRS Trump Accounts and IRS guidance on eligible investments.

Key Takeaway: The right account depends on the intended purpose. Education funding, flexible financial support, and long-term retirement-oriented investing call for different tools, and none should be selected independently of the family's broader plan.

Question 5: How Does Wealth Transfer Fit Into Your Broader Investment and Estate Strategy?

Wealth transfer fits into your broader investment and estate strategy as one part of a coordinated plan. This is because even a well-intentioned gift can create unintended consequences if it’s made without considering the rest of your financial picture.

For families with meaningful investment assets, wealth transfer planning should begin with a clear understanding of what they need to retain. That includes retirement income, liquidity, healthcare needs, lifestyle expectations, and the possibility of unexpected expenses.

From there, several considerations become especially important such as which assets to transfer, how the remaining portfolio will be affected, if the right professionals are involved, and if the beneficiaries are prepared.

Which Assets Should You Transfer?

Not all assets are equally suitable for gifting, and understanding which assets to transfer is important. For example, cash and high-basis investments may be relatively straightforward to transfer. Highly appreciated securities require a closer look at the potential capital gains implications and whether retaining them until death could provide a more favorable tax outcome.

Additionally, assets with significant future growth potential may be attractive candidates for certain lifetime gifting strategies, particularly for families concerned about estate taxes. But their suitability also depends on valuation, liquidity, concentration, and investment risk.

Privately held businesses, real estate, and other illiquid assets introduce additional legal, valuation, and tax considerations.

The objective shouldn’t be to transfer whichever assets are most convenient. It should be to determine which assets best support the family’s long-term goals.

How Will the Remaining Portfolio Be Affected?

A substantial gift changes the donor’s financial position, and the affect on their portfolio should be considered. Transferring a concentrated stock position, for example, may reduce investment risk in the donor’s portfolio. But it may also create an unintended concentration for the recipient or a trust. Likewise, transferring income-producing assets may affect the donor’s cash flow, while funding a trust may require a separate investment policy aligned with its distribution needs and time horizon.

These decisions should be considered alongside asset allocation, risk tolerance, liquidity, and long-term investment objectives.

Are the Right Advisors and Professionals Involved?

Effective multigenerational wealth planning often requires coordination among investment advisors, estate planning attorneys, and tax professionals. An estate attorney may help establish the appropriate legal structure. A tax advisor can evaluate gift, estate, and income tax consequences. An investment advisor can help assess which assets to transfer, how those transfers affect the broader portfolio, and how gifted assets should be managed over time.

In our experience, the greatest value often comes from ensuring those decisions are made together rather than independently.

Are Your Beneficiaries Prepared?

A successful wealth transfer isn’t measured solely by the amount passed to the next generation, but also by whether the beneficiaries are prepared or equipped to make thoughtful decisions with the resources they receive.

Families may benefit from conversations about financial responsibility, investment principles, charitable priorities, and the purpose behind their wealth. Depending on the family’s circumstances, these conversations can begin well before a beneficiary receives control of substantial assets.

Key Takeaway: Wealth transfer is not a standalone transaction. It is part of a broader investment, tax, estate, and family planning strategy that should evolve as circumstances change.

A Lasting Legacy Begins With Thoughtful Planning

The holiday season offers a natural opportunity to think about generosity and the people whose futures we hope to support. But meaningful multigenerational wealth planning extends well beyond a single gift or calendar year.

For some families, the right approach may involve systematic annual gifts. For others, it may mean funding education, establishing trusts, or transferring appreciating assets during life. And in some cases, retaining certain investments for an eventual inheritance may be the more advantageous decision.

There is no universal formula.

What matters is understanding the trade-offs: the potential tax benefits, the control you’re willing to relinquish, the financial security you need to preserve, and the long-term opportunities you hope to create.

How Raffa Can Help

At Raffa Investment Advisers, we believe preserving and transferring wealth should be approached with the same discipline and care as building it. We work with individuals and families to align investment decisions with their broader financial objectives, helping them navigate important transitions and coordinate with their tax and estate planning professionals. Whether you’re considering a substantial lifetime gift, reviewing how your investments fit into your estate plan, or thinking about the financial legacy you want to leave, we welcome the opportunity to connect. Because the most meaningful legacy isn’t simply the wealth you pass on, but the thought and intention behind it.

Schedule a meeting with our team of advisors to discuss your family’s wealth transfer goals.

About the author

Juliana Salamone, CFP®

Senior Portfolio Manager

Juliana Salamone, CFP®, is a Senior Portfolio Manager at Raffa, where she works closely with nonprofit clients and individuals to develop thoughtful, prudent investment strategies aligned with their goals, preferences, and financial condition. She brings deep experience serving clients, guiding them through comprehensive financial planning, portfolio construction, and ongoing investment oversight. Juliana is a CERTIFIED FINANCIAL PLANNER™ professional and an investment adviser representative of Raffa.

View Juliana's Bio

Disclosures:

This article is intended for educational purposes only and does not constitute individualized investment, tax, or legal advice. Tax treatment depends on individual circumstances, applicable federal and state law, and the structure of each transaction. Trusts, estate planning arrangements, and investment strategies should be reviewed with qualified legal, tax, and financial professionals.

Portions of this article were drafted with the assistance of AI tools and reviewed by Raffa Investment Advisers staff for accuracy and compliance.

Raffa Investment Advisers is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Diversification does not protect against loss in declining markets.

This article is for informational purposes only and should not be construed as personalized investment advice.