3 Tips to Maximize Your Legacy

3 Tips to Maximize Your Legacy

By Solid Serenity Legal Solutions

Everyone needs an estate plan. When planning for your legacy, you have a lot of things to consider. From choosing who gets what to who manages your assets when you’re unable to, there are a lot of important decisions that go into your estate plan. Yet one more consideration is who should get what and how. Your decisions can impact your heirs financially.

Here are 3 tips to maximize your legacy through your estate plan.

(1) Make an Impact with Charitable Contributions

Some assets are better suited for charitable contribution than others. Remember that properly formed non-profit entities do not pay taxes.. So, it may make sense for your family to leave assets that would be taxed if given to your heirs to your charity of choice.

For example, while heirs will not pay taxes on cash inheritances up to the Federal and State estate tax exemption laws, they will pay taxes on distributions from Individual Retirement Accounts. They will also be subject to the new Secure Act rules. These rules include forced distribution of the account for certain heirs within 10 years. That means they will pay taxes on that distribution when the time comes.

If you’re interested in charitable gifting, make sure to think about what assets would be the best to give to give your heirs a tax break.

(2) Think About High-Income Heirs

Some families have only high income heirs. If your heirs are in high income tax brackets and you have a high balance in your qualified accounts, you may want to get creative in gifting to give your heirs higher impact gifts.

In this situation, you may want to consider exceeding your required minimum distribution from your qualified retirement accounts each year to place the funds into life insurance or other non-qualified accounts for your heirs. This strategy allows your heirs to inherit the assets with a bigger tax break. If you choose this strategy, be mindful of the taxes on your withdrawals above your required minimum distribution.

(3) Consider Your Heirs’ Income Levels

When gifting to heirs in higher income brackets, it makes sense to consider the tax consequences of those gifts. For example, let’s consider a family where the Father has an estate plan. Daughter has an income of $500,000 per year. Son has an income of $100,000 per year. Father has 2 retirement accounts. One account is a Roth IRA of $500,000 and the other is a traditional IRA of $1,000,000.

In this situation, it may make sense for Father to give Daughter the Roth and Son the traditional IRA. That’s because, over time, the beneficiary of the traditional IRA will be required to pay taxes and may be required to take full distribution of the IRA within 10 years. So, in the long run, under this inheritance formula, Daughter and Son would inherit equally. Whereas, an even split of the 2 assets would lead to Daughter footing a much higher tax bill.

When it comes to estate planning, there is no on-size-fits-all solution. Everyone has different goals and circumstances that dictate what tools and planning they need. Book online to get your personalized plan in place.