Transferring wealth & wisdom from generation to generation
Edward E. Wollman, JD, LL.M
Patrick Courville, J.D.
I think of it as putting your oxygen mask on first. “Sometimes people get carried away and do more planning than is necessary — and end up with buyer’s remorse. It’s very important to make sure you are well taken care of first. Without understanding your financial capacity, you could end up over-gifting and end up with a plan that does not fully satisfy your goals.” The goal is never to minimize one tax in isolation. It is to build a plan that protects your income, your family, and your legacy — in that order. The Two Questions Worth Asking Your Advisor This Spring For clients who have not reviewed their estate plan in the last two to three years, or who built their plan around avoiding estate taxes, rather than minimizing income taxes, the gap between what your plan does and what it should do may be significant. “Over-planning where it’s not necessary, and under-planning because they lack knowledge that these techniques are available — that’s the most common mistake I see. Techniques that are fairly neutral, in the sense that you can continue to receive the income during your lifetime, and just pass the wealth at a lower tax rate when you pass away.” The 2 questions I would encourage every client to bring to their advisor this spring are the following: 1. Based on my current income tax situation, am I in a position to shift any of my assets into something that will grow in a more tax-favored manner?” 2. How can this be done with minimal or no impact on my current cash flow? It is a simple question. But the planning it can unlock — around step-up in basis, retirement accounts, charitable strategies, and tax-efficient wealth transfer — may be the most valuable conversation you have all year. “A big part of estate planning is being able to sleep at night knowing you have taken care of your family — for now and in the future.” That’s what this work is really about. Is your current plan built for today’s tax environment? Wollman, Gehrke & Associates offers an estate plan review for existing clients and qualified prospective clients throughout Southwest Florida. To schedule a conversation with Ed or a member of our team, contact us. In our next issue: Roth conversions, Charitable Remainder Trusts, life insurance as a tax shelter, and the advanced strategies that can keep more of your wealth in your family’s hands.
Traditional IRAs and 401(k)s have never been taxed. Every dollar that comes out, whether withdrawn by the original owner or inherited by a child, is treated as ordinary income and taxed accordingly. For decades, that was manageable. Retirees and beneficiaries drew down their accounts gradually over their entire lifetime, staying in moderate tax brackets, and passed whatever remained to their children or grandchildren. Then the rules changed. Under the SECURE Act, most non-spouse beneficiaries are now required to fully distribute an inherited IRA within just 10 years. For a child inheriting a $1.5 million IRA while still in their peak earning years, that compressed timeline can push them into the highest federal tax brackets precisely when they can least afford it. A significant portion of what you spent a lifetime building gets handed to the IRS in a rush. I have seen this play out firsthand. I had a client who had accumulated an enormous amount of assets inside a tax-deferred vehicle. Rather than leaving his IRA to his children directly (through inherited IRA(s)) triggering large income tax liability over 10 short years, he contributed the IRA to Charitable Remainder Trust (s) (CRT) for his children’s benefit. The income is then spread out over their entire respective lifetime(s). “The trustee of the CRT was able to withdraw the entire IRA balance without immediate taxation and the entire balance could be reinvested inside the CRT without the income tax drag. The beneficiaries then receive the annual payout (typically, 5 percent a year) and pay income tax upon receipt of the funds over their remaining lifetime. (He was able to invest 100% of the IRA tax- deferred).” The difference was not marginal. By keeping the full pre-tax amount working and growing, the long-term impact on his family’s wealth was substantial. Without that planning, a significant portion of a lifetime of savings would simply have disappeared into the tax system. This is the kind of outcome that proactive income tax planning makes possible. It is the kind of outcome that almost never happens by accident. Estate Planning Is Not Just for the Ultra-Wealthy One of the most costly misconceptions I encounter is the belief that estate planning is primarily about taxes and only relevant for the very wealthy. It is not. This misunderstanding causes families at every wealth level to delay planning that could protect everything they have built. “Estate planning is agnostic as to net worth. You first have to make sure your foundational documents are in place — so that if you get sick or pass away, everything is going to move smoothly and not end up with a large amount of expenses to administer your estate.” For a family with $3 to $7 million in assets, the most important planning questions have nothing to do with estate taxes. They center on making sure a surviving spouse is financially protected, that assets reach children and grandchildren without costly delays, and that during a period of incapacity — due to an illness, an accident, or cognitive decline — your family is not left scrambling. At our firm, every client engagement begins the same way: with a complete inventory of your financial life across seven key areas — financial planning, estate planning, wealth preservation, life insurance, cash flow management, long-term care, and philanthropic planning. We call it our Seven-Bucket Framework, and no strategy gets recommended until that full picture is clear.
Visit www.probate-florida.com to read more about this subject and other estate planning matters.
Ed Wollman is a Florida Bar Board Certified Attorney specializing in wills, trusts, and estates with over 35 years of experience practicing in the state of Florida.
Where Today’s Plans Become Tomorrow’s Legacy 2235 VENETIAN CT #5, NAPLES, FL 34109 (239) 435.1533 — (239) 435.1433 FAX
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