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Investing Strategies Retirement Investing
#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?

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#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.

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#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.

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#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.

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#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

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#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.

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#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:

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#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

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#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.

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#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

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#21

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.

Sure she can, as can ours. We told them their inheritance was getting college paid for.

Let me make two things clear:

  1. We are not deciding to spend less on us for our kids to inherit more. If our savings gets fully spent, I sure as heck hope it’s on a good time and not medical care. I don’t give a second thought about leaving money to the kids when I decided to spend or not spend money.

  2. If a little bit of thought and action now makes it that the gov’t gets less and the kids get more, I am all for that, particularly given that doing so also happens to in the very least be a break even for us, if not a decent benefit. Where the benefit to the kids calculation comes in is over the top of ours, as a hedge against our having made a mistake, given we can’t predict the future. But I love financial strategizing. YMMV.

For example, in deciding Roth conversions our calculations told us that there was a benefit to doing as much as we could up through the 24% tax bracket, for our benefit, subject of course to assumptions that may or may not be accurate and subject to annual review. The benefit increases hugely if something happens to one of us and we are then filing in the single tax bracket, not MFJ. And if early on in our retirement we both get taken out on the interstate by a semi, there is further benefit to those conversions, given the kids will inherit and be subject to even more taxes than we are. It’s not a calculation of how much can I leave my kids because I am so worried about them, but a strategy to maximize the return of our hard work in a way that we want, not yet more money given to a gov’t that can not get it’s act together, no matter how much money it pulls from taxpayers.

The whole premise of the OP misrepresented what has actually been discussed on this board.

IP

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#22

Just to be clear, I wasn’t picking on you (or anyone else).

I was just answering the OP’s question. I don’t worry about taxes, especially after I will be dead. I could go on about “should”, but that really isn’t relevant here (e.g. the government should eliminate the step-up basis, and tax more heavily inheritances than work). They may do that in the next 20 years, or they may not. It isn’t (to me) worth my attention.

ROTH conversions to benefit us? Sure, that is worth looking at.

You sounded offended, and that wasn’t my intent. I was just answering the OP, not singling anyone out for criticism if they happen to disagree with me.

1pg

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#23

You sounded offended, and that wasn’t my intent.

Not at all, but thanks for asking.

I do however find the whole “the gov’t can take what it can get” way of thinking hugely lazy, and perhaps that is simply what that person wants to spend his money on so I hope he gets what he wants. But for this thread to represent what we have been talking about at length on this board, changes to consider making in your finances so that you maximize return on your work days and direct that return to where you want it to go, and turn it into why is everyone agonizing over maxing out an inheritance for their (probably undeserving) kids while ignoring their own needs, is really a disservice to this board. I realize it’s in part due to the old telephone game when we were kids, where whispers were sent down a chain of people and confused horribly from the original message at the end, but it was time to set the original message straight, as the distorted messages were no longer funny.

IP

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#24

I was just answering the OP’s question. I don’t worry about taxes, especially after I will be dead. I could go on about “should”, but that really isn’t relevant here (e.g. the government should eliminate the step-up basis, and tax more heavily inheritances than work). They may do that in the next 20 years, or they may not. It isn’t (to me) worth my attention.

I lean Conservative and feel that the problem isn’t too little taxation, it’s too much spending. There will never be enough taxation to satisfy the spenders. That being said, I can be somewhat sympathetic to the idea of not creating trust-fund babies and all of the bad stuff that often comes with that. But eliminating the step-up creates nightmare accounting hassles. While I am NOT in favor of lowering the Unified Credit for Gift & Estates, (“raising estate taxes”), I’d rather see THAT and keep the step-up. In my adult lifetime, I knew of a $600,000 exemption during Clinton and vaguely think I remember a smaller exemption in the 1970s (I am age 62). $600,000 under Clinton is probably about double that today. With an estate tax reach “that low”, no one should feel bad about retaining the step-up (other than the Far Left who want it all).

I am NOT advocating for a $1.2M exemption, but just saying that the cleaner way to punish the rich (even upper middle class), if that’s what society wants to do, is to just lower the exemption and don’t complicate people’s lives crazy with an elimination of the step up.

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#25

When making investment decisions, so many on this board (and elsewhere) are quite focused on leaving assets to heirs.

I’m not focused as much as leaving assets to heirs as I am focused on leaving as little as possible to Uncle Sam.

JLC

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#26

…and turn it into why is everyone agonizing over maxing out an inheritance for their (probably undeserving) kids while ignoring their own needs, is really a disservice to this board.

I can’t recall specifically, but I seem to recall a poster on this board worried about exactly that. Or maybe they were relating a story about a parent. It all blurs together sometimes.

This is a very real problem (IMO…some folks may not consider it a problem). When I’m gone, I will no longer care. Not by choice, but because I will physically not be able to care.

Again, I don’t want to get into the politics of taxes. There are other boards for that. If I’m lazy, so be it. I just do not care about taxes and tax avoidance. My finances are not that complicated, and I have few areas I can exploit for avoidance. Of more concern to me, since I will be retiring before Medicare eligibility, is minimizing my reportable income so I can get a decent ACA plan that I can afford.

Worst case, 1poorkid will owe some taxes when we die. Fine. It will be less than the value of the estate, so she can liquidate whatever she needs to cover it. I’m not gonna stress over it.

1poorguy

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#27

I can’t recall specifically, but I seem to recall a poster on this board worried about exactly that,{agonizing over maxing out an inheritance for their (probably undeserving) kids.} Or maybe they were relating a story about a parent. It all blurs together sometimes. Words in brackets mine.

Or you remembered someone claiming that was what they were doing and that was the message that stuck, even though the original message had to do with making sure that you make sure your money goes to where you want it to go to rather than to Uncle Sam.

Like I said, it’s like the game of Telephone. A message gets stated, and someone halfway reads it while watching TV, criticizing something that was never said in the first place, and now all that can be remembered is that change in message. Or a small fragment of the post gets quoted and then people pile on to that fragment that has been replied to out of context of the supporting information. Seemingly no one takes the time to read the whole thread for clarification when things get confusing, understandably not wanting to take the time to do so, but then waste time posting yet another one liner that reinforces the morphed discussion further away from the original post.

You demonstrate this with your I can’t recall specifically, but I seem to recall a poster on this board worried about exactly that. I can recall specifically that was what people implied to several threads I started, even though it has never been something I worry about, nor a concept that I stated. I just want my hard earned money to go where I want it to go, to the extent the law allows, and I will do my best to make sure the gov’t gets as little of it as possible.

I just do not care about taxes and tax avoidance.

Then skip those threads rather than pile on with half read misinterpretations. Let those of us who do care about avoiding taxes discuss it without polluting the thread with distortions of the intent of the thread. TMF has kindly provided a tool for that called “ignore thread.”

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#28

Again, I was just answering the OP’s question. “Yes, I have given thought to this”. If you start a thread about tax avoidance, I might skim it, but I’m not likely to comment.

This thread was about investing for heirs (first sentence: “When making investment decisions, so many on this board (and elsewhere) are quite focused on leaving assets to heirs.”). I have given thought to that, and already stated my opinion that it is a mistake. And, yes, part of that is taxes. Which I don’t care about (and stated so multiple times). The governments (there are usually at least two involved: state and federal) will not seize everything, just a percentage. Big deal. I’m gone, and 1poorkid better not be relying on her inheritance for survival. So a non-issue.

I don’t see this as “polluting” this thread. It’s quite on-topic.

Start a thread on adjusting bases, and I probably won’t have anything to say (other than the government shouldn’t allow that). But that’s not what this thread was about, or at least not explicitly.

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