Retirement Planning Tip #6

The proper and most tax efficient way to leave a financial legacy to your loved ones

You’ve worked hard to accumulate wealth. As you ponder passing it on to the next generation, remember there’s someone who wants his share—Uncle Sam.

While the mechanics of estate planning are easy, the entire process requires a lot of thought and planning.

Legacy Estate Planning

In a nutshell, estate planning is the ability to pass the assets you’ve accumulated to whom you want, when you want, the way you want in the most tax efficient manner, minimizing estate taxes and probate costs. There is a right way and a wrong way to pass your financial legacy to your heirs.

James Gandolfini died with an estate worth an estimated $70 million, but according to some experts, the late Sopranos star’s will was a “disaster” that could see more than $30 million of his estimated $70 million estate go to the government.

While you likely don’t have an estate worth as much as Gandolfini’s, here are 3 things you can do to minimize taxes on your death.

#1 The marital deduction

If you’re married and your spouse is a U.S. citizen, your estate won’t owe any taxes if you leave everything to them.

However, the marital deduction doesn’t eliminate taxes, it defers them. If the property transferred to your surviving spouse remains in his or her estate, and the estate is large enough, the government taxes their estate when they pass away.

When you leave all your assets to your spouse, you have no control over how the money is managed or distributed after you die. Growth on the assets is included in your spouse’s estate and taxed when they die.

There are solutions to these problems but it’s best to talk to a trusted financial advisor to learn about your options.

#2 Reduce the size of your estate

Another way to minimize taxes is to reduce the size of your estate before you die. Enjoy yourself by spending some of your money now or by giving financial gifts to the people or causes you care about

#3 Purchase life insurance

If you want to leave money to your children or another designated heir, consider purchasing guaranteed life insurance with a fixed death benefit. The benefit transfers to your beneficiaries 100% income tax-free.

Speak to a skilled financial professional to determine how to pay for life insurance. They can help you find a way to pay the premiums without significantly changing your cash flow. One option is a guaranteed income product that creates an income stream that will not fluctuate with market performance or interest rates.

Another piece of the puzzle

Planning your legacy is another piece of the financial planning puzzle.  I’ve kept things pretty simply outlining the steps you can take to ensure you have the legacy you want. Be sure to talk to your financial advisor for a more detailed explanation tailored to your situation.

Stay tuned for our next installment of the Retirement Planning Tool Kit when I share information on transitioning into retirement.

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