What are we doing here?

Investing Strategies Retirement Investing
1

When making investment decisions, so many on this board (and elsewhere) are quite focused on leaving assets to heirs. Setting aside how we might view the importance and/or problems of leaving assets to heirs; focusing on “legacy” surely changes our investing decisions.

I raise this issue because of the last post I read from SnootFool, but really it’s a subtext of 50% of this board.
i.e.
In what order do we draw assets down, to minimize taxes and/or leave the maximum to heirs?
How do we create trusts that minimize the tax burdens and “losses” of capital that our heirs might otherwise experience?
How do we structure our estates to be be least burdensome from a tax standpoint for our heirs, nevermind the fact that they will (may) be getting something for nothing?
How much dough do we need to survive and thrive, and still leave a gob for our heirs?

How about asking this-
Do we really have a responsibility to set our heirs up with a heap of cash and if so, or if not, how does that change risk calculations for ourselves?
“How much dough do we need for us to thrive and not worry a fig about our heirs?”
Would this shift not simplify our lives and financial calculations on more than one plane?

Maybe this stuff has come up before on this board, but it’s the sort of subject I rarely see discussed. Really, what are we all doing here?
Do we all need to be Carnegies and Mellons?
You know that didn’t really work out so well for their heirs, yet we seem not to learn anything from that fact.

We (try to) teach our children to be self-sufficient for all of the right and obvious reasons. Why the focus on making it somehow easier for them when we’re dead, when it may in fact make life more difficult?

As previously noted, I have two children; one who would be ruined by a fat inheritance and one that is unlikely to ever need it.
How much of my band-width must I expend to sort that dynamic out?

We have also practiced “The Art of Looking Poor.” The practical benefits are tax advantages for us, now, in real time. But when we’re gone? The government can have what they can get, and with our blessing. It is the social and legal and financial structure of this country that has allowed us to live this beautiful life. I’m happy to pay for that…with the residuals.

That said, sure, we have set up 529s for our grandkids, so it’s not all about (not) taking it with us, but there is a heck of a lot of mental energy spent in this system that may not be entirely helpful (for #1 and other #1, a/k/a my spouse).

Anybody have thoughts on this?

-Randy

33 Likes
2

Maybe this stuff has come up before on this board, but it’s the sort of subject I rarely see discussed. Really, what are we all doing here?
Do we all need to be Carnegies and Mellons?
You know that didn’t really work out so well for their heirs, yet we seem not to learn anything from that fact.

We (try to) teach our children to be self-sufficient for all of the right and obvious reasons. Why the focus on making it somehow easier for them when we’re dead, when it may in fact make life more difficult?

As previously noted, I have two children; one who would be ruined by a fat inheritance and one that is unlikely to ever need it.
How much of my band-width must I expend to sort that dynamic out?

You do what the system allows to maximize your wealth. But I agree that it would be a lot simpler and fairer if we treated all forms of income and transactions the same, and applied one progressive tax table to the bunch.

As it stands now, the single largest transaction most semi-wealthy people make (transfer at death) gets a stepped up cost basis that makes it entirely tax-free for most (i.e., married couple with assets below $24.12 million.)

And that means everyone else has to pay higher taxes to make up the difference.

intercst

8 Likes
3

Idea –

What about a “flat tax” on money earned by “labor” (your job)
and
a different flat tax on money inherited
and
a different flat tax on income from investments (stocks, land, bonds, etc)

Remember that our country (USA) is maintained by the taxes we pay (plus a few other things)

Rich (haywool) a happy tax payer (so far)of 75yrs

4 Likes
4

To answer the question of what are we doing here,I came to this site in 1995 in order to learn investing so my wife and I could retire early. Mission accomplished at 58 1/2. The advent of the ACA,and learning to manage income to qualify for subsidies probably allowed us to retire 2 years earlier than not having the knowledge.
Managing taxes in order to live a full and satisfying life,and still leave something to our heirs is important to us.Proper planning necessitates leaving money at death unless you can plan your date of death as well. Might as well try to manage the tax burden intergenerationally as well.

JK

3 Likes
5

Do we really have a responsibility to set our heirs up with a heap of cash and if so, or if not, how does that change risk calculations for ourselves?

Nope, and not at all.

“How much dough do we need for us to thrive and not worry a fig about our heirs?”

Two separate things and not dependent on each other. I will say that I am becoming increasingly less “worried” about the kids, but they are still in their 20’s and in the process of defining their lives. Worry is typically not something one can shut off, and it doesn’t end when they turn 18. That said, I love to help our kids, and if the choice is give it to them or give it to the gov’t, our kids get our vote. At some point, as a family we may vote together to give some of it to charity as well. I am aware however that money is not always helpful, and sometimes can hurt, which is why as a hit by a bus contingency plan, for a premature and joint death, we have a constrained trust set up until the age of 35, which should give them enough time to be well established in a career. We have the finances we need to thrive and do not deprive ourselves, but frankly I am not going to spend for the sake of spending. Things are not happiness for me. Neither is paying taxes. While we are not setting out to amass a large inheritance for the kids, that just may naturally happen given the enjoyment I get from making our nest egg grow, all while having fun. I like the investing game. Should I stop because we have enough?

We (try to) teach our children to be self-sufficient for all of the right and obvious reasons. Why the focus on making it somehow easier for them when we’re dead, when it may in fact make life more difficult?

Because now that they are grown up, and have learned the self-sufficiency lessons, there is no real reason to make things harder than it needs to be. We have one child making more at 27 than DH made at the end of his career. He is getting multiple head hunters a week trying to get him to change jobs, all while he does what he has been passionate about since middle school, working as a penetration tester, helping companies protect themselves from cyber attacks. He is highly unlikely to need extra money while pursuing his dream, unless he uses it to set up his own contracting firm. Youngest is a recent college grad going to work in protecting the environment. His bliss will never make him lots of money, but arguably is more important than his brother’s wealth accumulating work in cyber security. If we can help him to follow his passion by leaving him extra money, then that’s a good thing for him and for you and the rest of the world, frankly. And since we wish to do no harm to their relationship, we will give them both equal shares.

Understand that they too were part of our financial accumulation. We did not live in fancy houses and drive fancy cars like our peers did. This did not escape their notice, but they accepted that we were not spending more than needed so that DH could retire early. We taught them to work and save, to invest, with jobs at 14, which is as early as was allowed by the state. We taught them to give back to the community. They’ve learned well. So why not have them inherit?

The government can have what they can get, and with our blessing. It is the social and legal and financial structure of this country that has allowed us to live this beautiful life. I’m happy to pay for that…with the residuals.

Not for me. The gov’t has been well paid by us already. And we have produced two productive children who will likely continue to pay much more in taxes than they benefit from. I am not about to close my eyes to the legal loopholes to avoid taxes, though we do tend to not participate in freebies we could take, preferring to leave them to those in actual need. Since you are so much more generous than I to Uncle Sam, please know that you can donate to the cause at any time. Why wait until you die when they will gladly take extra when you file your taxes? I’m sure they would appreciate that, but considering they already spend like trust babies, why encourage bad behavior?

IP

8 Likes
6

LOTP:"How about asking this-
Do we really have a responsibility to set our heirs up with a heap of cash and if so, or if not, how does that change risk calculations for ourselves?
“How much dough do we need for us to thrive and not worry a fig about our heirs?”
Would this shift not simplify our lives and financial calculations on more than one plane?

Maybe this stuff has come up before on this board, but it’s the sort of subject I rarely see discussed. Really, what are we all doing here?
Do we all need to be Carnegies and Mellons?"

In order to save for YOUR retirement, you first have to accumulate assets to have enough to comfortably retire on in the ‘lifestyle’ you desire when you retire.

Now, once you are close to having that goal, you have to begin to worry about the tax implications of a withdrawal situation, since once you hit 65 or 70, they are not there - just as moving money to tax free ROTHs (by paying tax NOW), and diversifying, worrying about when and how you /spouse will take SS and at what age for each, etc.

You also have to take into account health care considerations if you retire before 65 which can eat a lot of your budget.

If you go by the 4% rule for money above pensions and SS, then you are going to have $$$ in assets depending upon your lifestyle. If you want 40K, that’s a million bucks in assets you can withdraw from. Want 80K bucks a year above SS (and possible pension), then you need 2 million. That’s mostly likely before taxes.

Then you have to worry about when you’re over 65, hitting various tax brackets and the IRMA brackets for double or 3 times the basic Medicare/Supplement/Drug plan monthly bite from the government.

So… if you want 100K from your portfolio, you need 2.5 million saved up. Is that a fortune? If you croak at age 65, before you get to use it, your designated heirs get it.

Of course, some are likely to spend it…(and pay associated sales and other taxes) and deplete it.

For IRAs, they have to start spending it QUICKLY - so the tax man gets his bite.

Now, maybe some will die with 12 million or more in their portfolios. Most now retired probably won’t. Maybe 1%? Maybe 0.1%? Maybe 0.01%?

Some folks with kids/grandkids might be worried about the college costs in the future. Great to fund 529s or similar.

Only 1 in a 1000 likely really worrying about trusts and other higher cost vehicles to try and side step the tax man.

And nothing is guaranteed. The government can change the tax rules at any moment. tax breaks expire. Benefits can get cut. Inflation can wreak havoc.

If you’ve got tens of millions, then be like the Carnegies and others and DONATE a good chunk every year to your favorite charity(ies).

With rampant inflation - if it keeps up, you’ll need twice as much money to retire as inflation steals your purchasing power.

t.

2 Likes
7

inparadise analyzes,

Since you are so much more generous than I to Uncle Sam, please know that you can donate to the cause at any time. Why wait until you die when they will gladly take extra when you file your taxes? I’m sure they would appreciate that, but considering they already spend like trust babies, why encourage bad behavior?

That’s the ignorance that allows the current system to fester. Your personal generosity to Uncle Sam (or lack thereof) is lost in the round off. Getting enough people volunteering to pay more taxes than they owe will never “right the ship”.

We should be subsidizing things that allow people to work (i.e., education, child care, health care, and some minimal level of housing to keep people off the streets in expensive urban areas), and taxing everything else.

It’s just nuts that I paid taxes up the wazoo while working as an engineer, but had to volunteer to pay much of anything in taxes on a similar level of spending once I quit working and started living off an investment portfolio. And then when I die, estates of less than $24 million get transferred to the heirs with a stepped up cost basis, tax-free.

The dumbest thing you can do in America, tax-wise, is work for wage and salary income. And as long as that’s true, we’re going to have problems.

Where’s the “work requirement” for tax-free inherited wealth? Some people think it’s very important for the child tax credit.

Minimizing the “Skim” – the Key to Retiring Early
https://retireearlyhomepage.com/minimizing_the_skim.html

intercst

18 Likes
8

Your personal generosity to Uncle Sam (or lack thereof) is lost in the round off. Getting enough people volunteering to pay more taxes than they owe will never “right the ship”.

Because that ship is not right-able with it’s current mates. I hate to fund the paychecks of people who refuse to do their job. They do not take an oath to support their party, but to defend the Constitution.

I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.

[https://www.senate.gov/artandhistory/history/common/briefing…](https://www.senate.gov/artandhistory/history/common/briefing/Oath_Office.htm#:~:text=I%20do%20solemnly%20swear%20(or,that%20I%20will%20well%20and)

IP,
tired of paying the salary of shysters with my taxes

6 Likes
9

Interesting topic

In what order do we draw assets down, to minimize taxes and/or leave the maximum to heirs?
How do we create trusts that minimize the tax burdens and “losses” of capital that our heirs might otherwise experience?
How do we structure our estates to be be least burdensome from a tax standpoint for our heirs, nevermind the fact that they will (may) be getting something for nothing?
How much dough do we need to survive and thrive, and still leave a gob for our heirs?

To me, maximizing money returns matters, as my ‘heirs’ (currently/mostly) are charities/scholarships.
Hard earned money, at a point, makes money. All those questions are important to me, including making sure I have enough (hopefully) to take care of me until I am gone.
It allows me to give more freely.
What’s left for others will be what it will be, although I do want to pass along something to help the next generation.

But spending time maximizing your current stash and looking at ways to give freely gives you more money - to give.
Plus it’s sort of a (life style grew into) hobby.

Philanthropy…

nag
and who was Phil? And how did he do it?

3 Likes
10

In what order do we draw assets down, to minimize taxes and/or leave the maximum to heirs?
How do we create trusts that minimize the tax burdens and “losses” of capital that our heirs might otherwise experience?
…
How about asking this-
Do we really have a responsibility to set our heirs up with a heap of cash and if so, or if not, how does that change risk calculations for ourselves?

I didn’t plan my early retirement, investment plan, or anything else to leave a bunch of money to my heirs. Mainly, I wanted to “have enough” to see me from my ER date (turned out to be age 60) through the rest of my life and spouse’s life. At the end of that, I’d rather any unspent money go to my kids than some strangers. There will probably be something left, but my plans (which include minimizing taxes) are more to ensure not running out of money at age 90 if I should live to 98.

If I take certain actions, like convert the right amount of IRA money now to Roth, I will pay 22% taxes, but avoid paying 22% later PLUS pay 22% on the IRA AND 85% of my social security. Why shouldn’t I make the effort to model that to see if that’s a good strategy for me, or see if other factors invalidate it? Having less friction (taxes, expenses, etc.) allowed spouse and me to retire at 60 and have a good chance of not outliving our money under sub-ideal conditions (returns, inflation, taxes, sequence of returns). But under “average” conditions, we could have quite a lot at the end. However, two years into it, I’m still in the mode of needing to pay attention to the ins and outs so I avoid the bad situation of hitting 90 and wishing I’d retired a year later.

3 Likes
11

First, note that Estate Planning and the Fool is an excellent resource with many experienced posters. A great place to go for specific answers.

https://discussion.fool.com/contacting-others-post-death-3504908…

First question is where are you on the estate tax issue. The current exemption is $11.8+MM. That’s large enough that most of us don’t have to worry about it. That law does expire in 2025. There has been discussion of reducing the exemption to lower numbers. If your assets exceed the exemption, by all means go see a professional to work out the best plan for you.

Most assets are inherited on stepped up basis by your heirs. That means they receive all of your paper profits tax free up to that $11.8MM limit. Their cost basis becomes the market value of the assets on your date of death. (Congress has discussed collecting capital gains on the gain over $1MM but so far has not come up with the votes needed to pass it.)

This does mean its to your advantage to accumulate investments with paper profits in taxable accounts as they will be inherited tax free. (But of course keep an eye on pending changes in the law.)

Gains in your IRA, 401k, etc are taxed at ordinary income tax rates. And your heirs must pay the taxes when they inherit. So of course work down those values as best you can. Roth conversions is a good strategy. Funding 529 plans for family members can also work. The limits are huge these days. The heirs pay taxes on the gains at their rates. The funds are not part of your estate. Start early to allow funds to grow.

2 Likes
12

Trusts are most often used when you have children from a previous marriage. Or to protect privacy as probate records are open to the public. They can be used to double your estate tax exemption. They do keep you out of probate. Most do not protect you from estate taxes. Even life insurance is counted as an asset to your estate.

Many can avoid probate by using TODs (transfer on death) to transfer assets. Many states allow them. They can be used for brokerage accounts, mutual funds, real estate, and even motor vehicles in most states.

1 Like
13

My plan is to pay off my share of the National Debt when I die so I can rest in peace.

Everything else is desert.

JimA

2 Likes
14

But when we’re gone? The government can have what they can get, and with our blessing.

Could not disagree more.

First off, because I had no financial fallback, I was forced to take far fewer risks than I otherwise could have. (If your preceding and succeeding generation have depended on you for money then you know what I mean.) I’d love my heirs to have more freedom and security.

The government has a bad record of fiduciary duty. It’s not their money yet they treat it as if it is. Both parties. Gove them their due taxes and nothing more.

3 Likes
15

Not part of the inheritance worrying group. Kids all grown up and launched by the end of college.

Spending and enjoying it at this point.

Years ago when I tried to start a thread on philanthropy, it got no traction. Probably on a different board :wink:

4 Likes
16

intercst:"It’s just nuts that I paid taxes up the wazoo while working as an engineer, but had to volunteer to pay much of anything in taxes on a similar level of spending once I quit working and started living off an investment portfolio. "

Well, did it occur to you that all those taxes you paid while working…were sort of funding the government? And your Social Security? And your Medicare? (well, at least in part - they would have funded most if invested in the stock market instead of 2% government bonds)…

and I’m sure that now that you reached 65, you’re taking your Medicare (paying 1/4th the actual cost)…

and at 70, will take your SS for as long as you live?

Yeah, when you retire and don’t spend more than $30,000 a year, you’re not going to owe a lot of taxes on having to ‘sell’ part of your portfolio, or live off dividends taxed at 15% or lower. Even less if you have ‘tax losses’ on investments gone sour.

intercst:“And then when I die, estates of less than $24 million get transferred to the heirs with a stepped up cost basis, tax-free.”

Well, I think it is 12 million and that will expire and it will go back to a few million if not changed in 2026.

And…depending upon where you live, STATES have estate taxes that start at a whole lot less than 12 million…some starting at zero and are in the order of 10%. So your estate would owe a million two on a 12 million dollar estate to the state.

Of course, if you got money stashed in an IRA, that, when inherited, will have to be spend QUICKLY and taxes paid. Likely big taxes since the heirs getting it are likely still working.

There aren’t a whole lot of ‘trust fund’ babies. Or kids. What really is the actual number of people in their 20s and 30s or 40s not working because they have 7 figure trust funds? Leave out the Hollywood 100.

Most trust funds likely set up for special need problem children or kids education

intercst: “The dumbest thing you can do in America, tax-wise, is work for wage and salary income. And as long as that’s true, we’re going to have problems.”

I suppose the alternatives are go on government welfare and collect all sorts of benefits for doing nothing at all?

99.99% of the folks have no option but work for wage and salary income, or work for themselves at their own business until they have either saved enough to retire, or reach SS age and retire.

I really know of no one who ‘struck it rich’ by their ‘rich’ parents dying and leaving them ‘a bundle’ so they didn’t have to work for decades. Or passed on a fortune to their kids so they didn’t have to work at all, but just spend it.

For everyone who ‘struck it rich’ working in a start up company - there are 999 that didn’t. Or more.

t

6 Likes
17

And…depending upon where you live, STATES have estate taxes that start at a whole lot less than 12 million…some starting at zero and are in the order of 10%. So your estate would owe a million two on a 12 million dollar estate to the state.

15% in Pennsylvania for non-relatives, starting with dollar 1.

18

Trusts are most often used when you have children from a previous marriage. Or to protect privacy as probate records are open to the public. They can be used to double your estate tax exemption.</>

While this is still true, it’s no longer even necessary, due to “portability” that was built into the estate taxation code about 10 years ago or so. All you have to do is file Form 709 claiming a deceased spouse’s exemption.

19

I’m single. My goal is really to die with 10 cents left and I hope I spend it all having a great time and not on nursing home care.

Any money I have left goes to our local hunger charity.

2 Likes
20

Anybody have thoughts on this?

I haven’t read the thread yet, but I suspect someone has already said what I’m going to say. In which case, consider this emphasis.

1poormom a loooong time ago consulted a planner. He said that it was a mistake to consider heirs. Plan for yourself. If you did a decent job raising your kids, they won’t need your money anyway. Spend it on YOU. When she told me this, I emphatically agreed. I don’t want or need her money. If I inherit nothing, that’s fine by me. I just wish she had enjoyed it more while she could, because now she is in AL, and pretty much can’t do anything.

So, to answer your question, ‘yes’…I have thoughts on this. We set up a trust. It’s primary purpose is to take care of us. Secondarily, it is to make it easier for 1poorkid when we die. But the actual investments? I don’t give 1poorkid a second thought. I manage the money for us. There likely will be left-over after we’re gone, but that’s not really a consideration. If there is, there is. If not, well, she’s smart and has a good work ethic. She’ll be fine (financially),

The only reason I would consider heirs is if I had a disabled child I’m caring for. Some allowance would need to be made after I’m gone.

But otherwise, I don’t give a crap about taxes after I’m dead. Taxes generally will only be a percentage of assets, so if 1pk has to pony-up 25% of her inheritance…I’m not going to lose any sleep over it. (Yeah…I’d be dead anyway…you know what I mean.) IMHO, thinking about step-down basis and other nonsense is, well, nonsense. It’s added complications and stress that I don’t need, and any planning I do now will likely be irrelevant as tax laws change all the time.

1poorkid can take care of herself. Whatever is left of our estate will just be icing on her cake. I don’t worry about it at all.

1poorguy

26 Likes