Legacy Planning

It is anticipated that we will see more than 20 trillion dollars transferred from the Depression-era generation to their Baby-Boomer children and millennial grandchildren. This wealth was built on the values of frugality, resourcefulness and hard work.  It was then blessed to ride a wave of growth unprecedented in history.  We all need to be mindful of “To whom much has been given, much is expected.”  Many of us are in the midst of addressing issues around wealth transfer.

We all want to do what is best for our families and communities.  With some strategic planning, and willingness to have conversations around money, we can avoid potential pitfalls.   You can do the best you can during your distribution phase and minimize the amount of your financial legacy that ends up in Uncle Sam’s coffers.

What is within your control?  What financial assets do you own?  What is their purpose during your lifetime and what do you want to have happen to them at your death?  What is your income flow strategy?  How much will you need?  These are just a few of the many questions you want to discuss within families and amongst your team of advisors.


The Roth IRA is a beautiful tool to use if you are looking at financial legacy planning.  The general rule is that ROTH IRAs are great accounts to leave to loved ones.  If your heirs follow IRS rules, they can take stretch distributions tax free, letting most of the investments grow.  With the estate tax deduction now at more than $10.6 million for a married couple, most ROTH IRAs will be estate tax free as well as income tax free.  If you have a large IRA that you don’t need for your personal needs, you may want to consider a conversion.  You have to pay the taxes in the year you make the conversion and you don’t want to liquidate any of the account to pay those taxes.  You need to do a cost-benefit analysis to determine how it fits into your planning needs alongside taxation of Social Security benefits and your current tax bracket.

Traditional IRA’s and Qualified Plans

These are considered the worst vehicles to leave to your heirs.  Many retirees try to only take the “Required Minimum Distribution” out of these accounts.  This may or may not be the most prudent route to go if your intentions are moving towards legacy giving.  Distributions to you are taxed as ordinary income.  This will pass through to your heirs.  It will come to them as ordinary income, increasing their potential tax liability.  Based on your situation and charitable intentions, these may be great pieces to pass on to organizations with 501C3 standing.  Charitable organizations do not have to pay income taxes.  You could equalize your estate in other creative ways.

“Step Up” your basis

Another great asset to pass forward are investments held in taxable accounts or real estate that has greatly appreciated in value. The cost basis is the original price paid for an investment.  It is the starting point for measuring profit or loss when an asset is sold.  At the date of death, a new “step up” basis is determined.  If you were to sell these assets prior to death, you would incur capital gains taxes.  Again, you need to consider what your income needs are to determine how or when to sell assets.

More important than passing on your material assets is to leave your legacy of values.  While proper titling of assets as well as creative financial and estate planning are important, a financial legacy can fail to serve and thrive unless core family values are passed on first.  Consider an “Ethical Will”.  Ethical wills, or legacy letters are a beautiful way to share family life lessons, your values, hopes and dreams for family members.  There are on-line templates, or you can prioritize the time with specific family members in mind, to share this heartfelt expression of what is most important in your life.  As we honor those that built the wealth that is being entrusted to future generations, let us not only look at tax-efficient transfer, but what it means to be responsible stewards of these bequests.

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