Organizing Your Legacy: Tax and Financial Planning Considerations

As we grow older and accumulate wealth, it’s natural to start thinking about how to ensure our loved ones are taken care of after we’re gone. However, passing our estate along isn’t as simple as writing a will and calling it a day. There are many factors to consider, including taxes, types of accounts, and how to organize everything so it’s easy to access.

In this post, we’ll break down the essentials for developing a legacy plan so your beneficiaries can enjoy more of what you’re setting aside for them. By making thoughtful choices that reflect your goals, you’ll be well on your way to securing your legacy and ensuring your family is prepared for the future. 

A Taxing Question

The only two things you can count on in life are death and taxes, and a legacy involves them both. If you have a significant estate it’s probably going to be subject to some form of legacy tax, and financial planning strategies can make a big difference in how much you’re able to pass along. Because of that, it’s a natural place to start in the planning process, and a well-crafted portfolio should take into account potential liabilities to ensure you make the impact you intend. 

Federal Estate Taxes

The federal estate tax is a tax paid by the estate rather than the beneficiary, which means if you’re on the receiving end it will have already been deducted. Nobody likes taxes, but in this case, there’s both good news and bad news.

The Bad: This tax adds up everything, including all financial assets, the fair market value of your property and possessions, and any debt and taxable gift exemptions you may have left. Depending on how much it’s worth, your estate could have to pay out anywhere from 18%-40% of its value. Understanding your obligations will help put everything in perspective as you’re planning for the future. 

The Good: As of 2023, only estates worth nearly $13 million and up are subject to the federal estate tax, so most people won’t have to worry about it!

State Inheritance Taxes

If you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, the person who inherits your estate will have to pay taxes if it’s over $2-$5 million depending on where you are. Every state is different, so you’ll need to look up the guidelines that apply and speak to a financial advisor to see how to best negotiate them.

Developing a Comprehensive Estate Plan

Fortunately, there are many ways to structure your plan so it can make the biggest impact possible. Considering legacy tax and financial planning solutions that harmonize your obligations with your goals can end up being a win-win that delivers the most to the people and organizations you care about. 

Trusts and Wealth Preservation

Trusts are powerful tools for managing your legacy. They offer flexibility, control, and clarity when transferring assets to future generations. Trusts also allow individuals to determine how their assets will be managed and distributed, ensuring their intentions are fulfilled. Furthermore, certain types of trusts such as irrevocable life insurance trusts (ILITs) or charitable remainder trusts (CRTs) can offer additional advantages depending on your needs. 

Philanthropic Giving 

Charitable contributions benefit the community and causes close to your heart, and since they’re tax free there’s a lot of incentive to give! Philanthropic exemptions are one of the best ways to begin expanding the scope of financial planning by touching more worthy recipients with your life’s work. 

Organize, Organize, Organize!

The last thing you want is for your estate to be incorrectly assessed, difficult to access, and end up stuck in probate forever while everything gets settled. It’s frustrating, it makes it harder for your wishes to get carried out, and it may result in additional expenses and tax liabilities for your beneficiaries.

Ideally, account numbers, passwords, wills, wishes, insurance information, and all of the pics and vids that make up your legacy should be preserved in a single, secure location or digital vault so it’s simple for family and administrators to access. 

Continuity Planning and Succession Strategies

For business owners, sound financial planning extends beyond personal wealth to encompass continuity and succession planning. Properly structuring and transitioning business interests to the next generation can be the difference between business as (almost) usual and closing the doors. By addressing these matters in advance, entrepreneurs can ensure the seamless transfer of their business comes with the lowest personal and financial stress. 

Preserving Your Financial Legacy: A Lasting Gift for Generations to Come

Streamline legacy tax and financial planning complexities is a vital part of making sure what you leave behind resonates far into the future. By understanding the intricacies of estate taxes, trusts, philanthropy, and business succession, you’ll be able to navigate the complexities of passing wealth on to future generations.

The Postage makes organizing and curating your life and legacy easy. By keeping your important documents, wishes, and content in one easy-to-access place, you’ll be able to enjoy the moments you have with loved ones today while experiencing the peace of mind you deserve. Click here to learn more about how The Postage can make organizing your life convenient, secure, and meaningful for everyone you’re sharing it with.