Taxes should be considered when making wealth transfers.

Nobody knows the number of their days.

Although people can die at any time from illness, injury, or accident, older individuals are at greater risk as a result of declining health associated with aging.

Seniors cannot afford to neglect incapacity and estate planning.

According to a recent Financial Advisor article titled “Tax-Smart Wealth Transfer Tips For Clients In Late Old Age,” people cannot make decisions when incapacitated and cannot take their wealth with them when they die.

Those without a spouse can gift an IRA to a young adult relative in a lower tax bracket to reduce the taxes owed on withdrawals.

Although some people barely have enough to pay their bills in retirement, others may have accumulated significant wealth.

Those nearing the end of their lives should prioritize the creation or update of an estate plan.

Their comprehensive estate plan should have beneficiaries named on investment and retirement accounts, incapacity agents named, and documents in place for the transfer of non-beneficiary designation assets.

Estate planning should also address the transfer of wealth while minimizing tax liability.

Older adults should be reviewing their estate plans annually.

Why?

The people they chose as beneficiaries or as executors for their estates may have died in recent years and new individuals will need to be named.

To specifically reduce taxes, several strategies can be used while a person is still living.

When taking withdrawals from traditional IRAs, the amounts should be consistent in timing and amount.

Doing so avoids the likelihood of being moved to a higher tax bracket.

Another way to maintain a lower tax status is to direct distributions of required minimum distributions from an IRA to charity.

Although people must take required minimum distributions, they can also benefit from taking voluntary withdrawals to fund Roth IRA conversions.

Because married couples have more favorable tax breaks and benefits than singles, it is best for couples to do so while both spouses are alive.

Donor-advised funds (DAFs) and family foundations can benefit from contributions through the selling of highly appreciated stocks.

If you anticipate the death of one spouse, you can transfer some of the appreciated stock held in joint accounts to an account owned by the spouse expected to die first.

When this spouse passes, the funds can receive a stepped-up basis.

Doing so can reduce capital gains taxes.

Key components of estate planning include updating beneficiaries on traditional IRAs and other accounts, discussing your investments and bequests with your executor so they can follow through after your death, and working with an experienced estate planning attorney to help reduce federal and state taxes for your estate and your beneficiaries.

How can taxes for beneficiaries be addressed in estate planning?

If you have no spouse to inherit your IRA, designate grandchildren or family members in lower tax brackets as the beneficiaries.

Why is this helpful?

The heir will have to withdraw all funds within ten years.

By gifting to someone in a lower tax bracket, you can decrease the likelihood of someone being bumped into a much higher tax bracket.

Gifting other assets to the children of already wealthy loved ones can also be beneficial.

Strategically planning charitable gifts can help reduce or avoid capital gains taxes and inheritance taxes at the state and federal levels.

In short, working with an experienced estate planning attorney will help you address tax considerations in your estate plan.

Reference: Financial Advisor (Oct. 3, 2023) “Tax-Smart Wealth Transfer Tips For Clients In Late Old Age”