Tax Planning for Inheritors | Estate Planning & Memento Mori

Less Takes for Inheritors

By Matthew McDaniel CFP® | Advisor

One of our favorite conversations as planners happens when clients say, “How can I help lower the tax bill for my inheritors?”

We love it because it’s driven by the desire to bless the next generation, and the only one losing out is the IRS–two of our favorite parts of the job. If you have saved more than you need, tax planning expands from your lifetime to include the wealth transfer as well.

One of the most valuable conversations here has to do with Roth conversions. Here are two main ways they increase the financial impact of your gift:

Distributions: Distributions from inherited Roth IRAs trigger no income tax–a key benefit if your inheritors are still working when you pass. If your tax bracket now is lower than their likely tax bracket when they inherit the funds, let’s take advantage of that.

Continued Growth: Unlike traditional IRAs under the new Secure Act 2.0, inherited IRAs do not have required minimum distributions over the 10-year withdrawal window. The money can continue growing, fully invested, for an additional 10 years.

In our experience, few tools offer such significant intergenerational advantages as a simple Roth conversion.

Discussing” is the VERY large audience that have yet to breech the topics. The takeaway? The implementers (sky blue) are the minority in every category.

Which category do you find yourself in? Are there any ways we can assist you in the conversations? Take time today to develop a plan. Age tends to be a big factor in delay. It’s natural that we think more about these preparations as we age. In fact, a recent survey by Caring.com, the senior community platform, found that just 24% of respondents ages 18 to 34 said they had will.

It may be that when we are younger, we just don’t feel like we have anything to pass on to anyone. However, starting young can also assist in opening the conversations with parents and grandparents who may be reluctant to have the conversations.

Remember, it’s just about getting started. All of it can be adjusted and changed at any point. If you have beneficiaries to update, we can help correctly document this for you.

Staying on Theme: As long as we are talking about the brevity of life and the necessity of planning for estate, let’s consider the example of the Ancient Romans. When a Roman general returned victorious from a major military campaign, it was customary for the senate to order a “triumph” to honor the general and his contributions. The general and his men would be paraded through the streets of Rome. Frequently during this ceremony, the general would hear a common slave whisper, “Memento mori.” The Latin phrase translates to, “Remember you must die.” It was spoken to keep the general humble in the face of any given moment of victory. Perhaps we need a sort of reminder from time to time, if nothing else, to keep us grateful and grounded in the moment we now live.

*The views expressed represent the opinions of Compass Ion Advisors, LLC  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 at www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.