Estate planning can help keep the family money

On Behalf of | Oct 13, 2021 | trusts

We get it, estate planning seems daunting. But, in the midst of the craziness of the last year or two, it has become quite the popular topic in the news and on social media. This is because estate planning is how we plan for the inevitable, death and taxes. Essentially, it is how we keep our family money in the family.

Will one have to pay estate taxes?

It depends on the size of one’s estate. Even though the subject has been a hot topic since the last tax bill passed into law, it really only affects those with an estate valued at over $11.7 million. This could, of course change, and, indeed, congress is currently debating whether to cut that number down to $6 million.

What about a trust?

That is probably a good idea. For anyone that is leaving an estate valued at around $250,000 or more, a trust is a smart move. Essentially, a trust is a legal instrument where the asset or cash is moved into the ownership of the trust entity, and it is controlled by a trustee to distribute that wealth after death and according to the terms of the trust. There are many types of trust, some that can even help people now qualify for government benefits, ones that help avoid taxes, etc. Though, consulting with an expert is usually the first step to figuring out which trust is best for one’s particular situation.

What about retirement accounts?

In most circumstances, leaving behind a traditional IRA or 401(k) account is like leaving one’s heirs tax bills and wasting assets. This is because distributions are taxed as regular income, which can become extremely expensive, quickly. And, while, in the past, heirs could stretch distributions out to lower tax liability, non-spouse heirs now have to withdraw all the money in 10 years. An easy way to avoid this is to convert those traditional retirement accounts to Roth retirement accounts. The converted amount will be taxed as regular income, but withdrawals later and any profits made thereafter are tax free. Plus, if tax rates increase, those accounts are shielded.

Of course, these are only a few tips to help our Charlotte, North Carolina, readers in their estate planning journey. The main takeaway is to begin planning now.