Financial Services

Are you prepared for tax impact of the $68 trillion great wealth transfer? Here are some options to reduce the bite


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The greatest wealth transfer in history is underway, and taxes may take a bite from inheritances without proper estate planning, financial advisors say.

It’s estimated that nearly 45 million U.S. households will transfer more than $68 trillion over the next 25 years, according to Cerulli Associates. Baby boomers hold the bulk of the wealth, thanks to a decade of stock market and real estate growth.

Estate planning is critical because important changes have occurred, said certified financial planner Michelle Gessner, founder of Gessner Wealth Strategies in Houston.

More from Personal Finance:
Inheriting an individual retirement account? Here’s how to avoid a tax bomb
Those 529 college savings plans can be a flexible way to transfer wealth
Advisors say life insurance may help combat Biden’s proposed tax increase

Here’s what families should know as they weigh options to transfer wealth.

While the Tax Cut and Jobs Act of 2017 made sweeping changes — such as cutting the highest income-tax rate and nearly doubling the estate-tax exemption — many provisions will sunset after 2025.

Meanwhile, President Joe Biden has called for levy hikes on the wealthy, including raising the top tax rate, bumping levies on capital gains and taxing inherited property at death, among other proposals. 

Although the future of Biden’s agenda is unclear, financial experts plan on higher future rates through new legislation or TCJA expirations.

“It really makes 2021 potentially a very consequential year for decisions,” said Larry Harris, CFP and director of tax services at Parsec Financial in Asheville, North Carolina.

Roth IRA conversions

This is something that needs to be addressed so that they can keep as much money for their families as possible,

Michelle Gessner

Founder of Gessner Wealth Strategies

One workaround, a Roth IRA conversion, changes the balance from pre-tax to after-tax money. The owner pays levies at “today’s low, bargain-basement” rates, allowing heirs to receive tax-free funds, said Gessner.        

“This is something that needs to be addressed so that they can keep as much money for their families as possible,” she said.

Life insurance tactics

Those with large IRA balances may also consider life insurance to transfer wealth, Gessner said. Owners may withdraw money, pay taxes on the funds and use the proceeds for a universal or whole life insurance policy.

Generally, heirs will receive a tax-free benefit worth two to four times what someone pays in, Gessner said.

Of course, the cost of life insurance premiums depends on age, gender, location, health status and more. However, an advisor can gather quotes and run projections to see if and when the investment makes sense.

“It is not one size fits all,” Gessner added.

Gifting strategies



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