Taxes and Your Legacy Planning October 10, 2016

Taxes and Your Legacy Planning

Leaving a Legacy While Considering Taxes

When it comes to deciding where to leave your individual retirement accounts and qualified retirement accounts, you may want to consider bequeathing those assets to a beloved charity rather than your loved ones. Because of the way they are taxed, retirement assets that are left to individuals have less of a financial impact as a portion of those assets go directly to pay federal and state income taxes. In contrast, a non-profit does not have to pay any taxes on assets that are donated to them so the impact of your gift goes much farther. By donating those qualified retirement accounts to your favorite charity, your legacy does more through the charity’s work and your loved ones are not negatively impacted by a tax burden.

What About My Heirs?

If you have updated your estate planning with the above suggestions in mind, you may be wondering what are the best assets to leave to your family or loved ones. Provided that your life insurance policies and property are under the federal estate tax exemption ($5.45 million for 2016, $10.9 million if you are married), those are the best assets to leave to your heirs. Up to that amount, your loved ones will pay no federal estate or gift tax, but remember that earlier gifts during your lifetime are included in that total amount.  

Remember to…

Whatever you decide to do with your estate planning, make sure you complete the designation of beneficiary forms for all of your assets so that they are left to the correct people and/or charities. Designating your contingent beneficiaries as well as your primary beneficiaries is always helpful as you never know what the future may hold for your primary beneficiaries. In addition to completing those forms, know that if you are leaving assets to a charitable organization, you may need to have consent from your spouse. Most likely, they will have to sign the designation of beneficiary form once it has been completed.

As always, it is best to talk to a professional (or a few) when you are completing your estate planning. We recommend talking with your financial advisor, attorney, CPA or tax specialist as appropriate to make sure you cover all the bases. Your estate planning is a vital piece to making a lasting legacy after you have passed away and you will sleep easier knowing that it has been done correctly. If you have other topics like this that you’d like to read about let us know in the comments below!

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