NEW YORK (AP) — While death and taxes are unavoidable, leaving a hefty tax burden for your heirs is not a necessity.
The affluent have mastered ways to minimize taxes and ensure seamless wealth transfer to their descendants. However, these strategies, which expedite payouts and reduce government obligations, are also accessible to those with smaller estates.
“It’s a strategic game of chess played over decades,” explains Mark Bosler, an estate planning attorney from Troy, Michigan, and legal adviser to Real Estate Bees. “While the average person relies on a simple will, the well-to-do utilize a different playbook.”
Utilizing Trusts
Despite common belief, estate taxes generally affect only the wealthiest Americans. Federally, estates exceeding $15 million are subject to taxes. Sixteen states, along with the District of Columbia, impose estate or inheritance taxes at lower thresholds, primarily affecting millionaires, according to the Tax Foundation.
While most individuals can transfer their assets without tax concerns, strategic planning is necessary to avoid a lengthy and costly probate process. A trust often serves as the cornerstone of effective estate planning.
Though trusts are often associated with the wealthy, they are practical tools for many. Setting up a trust involves costs, typically a few thousand dollars in legal fees, but it can significantly simplify asset transfer for retirees with substantial investments.
“You are leaving what might have gone to your children or other loved ones to attorneys and the courts,” says Renee Fry, CEO of Gentreo, an online estate planner. “Anywhere from 3 to 8% of an estate might be lost.”
Trusts can help bypass the court system, safeguard the estate from public scrutiny, and keep details private. They are also useful for those who wish to qualify for Medicaid to cover nursing home expenses without depleting their savings.
Tax-Free Stock Transfers
Investors can transfer stocks like Nvidia, which have significantly appreciated, to heirs without taxation through a process known as “step-up.”
Upon the investor’s death, the stock’s value is recalculated from the date of death rather than the purchase date, allowing heirs to sell the shares with minimal tax liability.
Benjamin Trujillo, a partner at Moneta, a wealth advisory firm, describes it as a “magic trick” that legally facilitates wealth transfer.
“Wealth transfer looks like smoke and mirrors,” according to Trujillo. “Assets like stocks can quietly grow for decades and, when they’re inherited, the tax bill often disappears.”
While lawmakers occasionally propose limitations on the “step-up” rule, it remains a powerful tool for those seeking to create lasting family wealth. It applies to various investments, including real estate, art, and collectibles.
Updating Beneficiary Information
Designating beneficiaries on accounts is a simple yet effective way to facilitate the transfer of assets. Although regulations vary, many financial institutions allow account holders to name beneficiaries for seamless fund transfers upon death.
“One of the easiest ways to transfer assets hassle-free,” says Allison Harrison, an estate planning attorney in Columbus, Ohio.
Beneficiary designations take precedence over wills, so keeping them current is crucial to prevent unintended beneficiaries, such as ex-spouses, from inheriting assets.
Estate planning requires time and effort, but as experts suggest, it is a key step that distinguishes the wealthy from those less affluent.
“Wealthy families plan,” Fry emphasizes. “They don’t leave assets and decisions unprotected.”
