Estate Planning Meets Tax Planning

Maximizing Your Legacy with Tax-Smart Estate Planning

Understanding Tax Implications for Different Assets

“By being very selective about who receives which type of money—whether Traditional or Roth IRAs, after-tax brokerage accounts, life insurance, etc.—you can dramatically cut the share that goes to the IRS and increase the amount going to your family.”

The Impact of the SECURE Act on Inherited IRAs

Not keeping a close eye on tax implications, often costs families tens of thousands of dollars or more, according to a recent article from Forbes, “Who Gets What—A Guide To Tax-Savvy Charitable Bequests.” The smartest solution for donations or inheritances is to consider your wishes, then use a laser-focus on the tax implications to each future recipient.

Tax-Exempt Charities and Asset Types

After the SECURE Act destroyed the stretch IRA strategy, heirs now have to pay income taxes on the IRA they receive within ten years of your passing. An inherited Roth IRA has an advantage in that it can continue to grow for ten more years after your death, and then be withdrawn tax free. After-tax dollars and life insurance proceeds are generally not subject to income taxes. However, all of these different inheritances will have tax consequences for your beneficiary.

Efficient Charitable Bequests and Heir Taxation

What if your beneficiary is a tax-exempt charity?

Charities recognized by the IRS as being tax exempt don’t care what form your donation takes. They don’t have to pay taxes on any donations. Bequests of traditional IRAs, Roth IRAs, after-tax dollars, or life insurance are all equally welcome.

However, your heirs will face different tax implications, depending upon the type of assets they receive.

Let’s say you want to leave $100,000 to charity after you and your spouse die. You both have traditional IRAs and some after-tax dollars. For this example, let’s say your child is in the 24% tax bracket. Most estate plans instruct charitable bequests be made from after-tax funds, which are usually in the will or given through a revocable trust. Remember, your will cannot control the disposition of the IRAs or retirement plans, unless it is the designated beneficiary.

Balancing Heir Inheritance and Charitable Giving

Using IRA Beneficiary Designations Strategically

By naming a charity as a beneficiary in a will or trust, the money will be after-tax. The charity gets $100,000.

If you leave $100,000 to the charity through a traditional IRA and/or your retirement plan beneficiary designation, the charity still gets $100,000.

Optimizing Bequests to Minimize Heirs' Tax Burden

If your heirs received that amount, they’d have to pay taxes on it—in this example, $24,000. If they live in a state that taxes inherited IRAs or if they are in a higher tax bracket, their share of the $100,000 is even less. However, you have options.

Consult an Estate Planning Attorney for Tax Advice

In conclusion, a carefully crafted estate plan that takes tax implications into account can save your heirs thousands of dollars while still fulfilling your charitable intentions. As a seasoned Kansas Estate Planning Attorney at Schlagel Long, I understand the complexities of tax laws and can help you develop a plan that maximizes the benefits for both your family and the causes you care about. Don't leave your loved ones to navigate the tax consequences of your estate plan alone. Call me, Benjamin Long, today at (913) 359-8996 for a free consultation, and let's work together to create a tax-efficient estate plan that protects your legacy and supports your beneficiaries.

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