The financial plans we prepare for our clients focus on helping them achieve their own distinctive goals and objectives. Many clients’ foremost concerns are either centered around devising tax efficient investment and cash flow strategies or developing an estate plan that minimizes their overall tax burden. Whether approaching retirement or currently retired, we help clients understand how existing tax rules apply to their situation. We strive to help clients establish a plan for leaving a legacy to loved ones and/or coordinating charitable gifting, while mitigating tax impacts. Additionally, we work with our clients to create detailed projections and “what-if” scenarios that compare the outcomes of potential tax strategies.
After we have identified what our clients hope to accomplish, we shift our attention to analyzing their current situation. Financial plans involve analysis of a client’s net worth, balance sheet, investment allocation, and financial statement (personal income and expenses). For plans involving tax and estate planning, this could mean reviewing a client’s family demographics, recent income and gift tax returns, existing estate planning documents (wills and trusts), and insurance policies.
The complexity of these plans ranges widely. It is important to note that even when circumstances are simple, one should at least have basic estate planning documents. These include:
- Last Will and Testament
- Healthcare directives (Living Will and Power of Attorney for Healthcare Decisions)
- Durable Power of Attorney (POA)
- Trusts (as necessary)
Without a will, assets pass to heirs through intestacy laws which vary by state and probably don’t match client desires. A healthcare directive and Durable POA appoints an agent of choice to make medical and financial decisions in case of a medical emergency or incapacitation.
Updating estate documents every few years is important to ensure they reflect current wishes and changing family circumstances. Additionally, Federal and State governments update their tax and estate laws frequently. For example, the Federal estate tax law has changed 5 times since 2001, raising the federal estate exemption amount from $675,000 to $12,920,000 per individual over that period. The Federal estate exemption is the amount of assets any individual can pass to heirs free of estate tax. Any amount bequeathed above this threshold incurs a federal estate tax rate of 40%. This does not include any estate or inheritance taxes imposed at the State level. The Tax Cuts and Jobs Act of 2017 set the current Federal estate exemption level, but it is due to expire after 2025, cutting the exemption amount in half. Without action from Congress, many additional estates will become exposed to Federal estate taxes.
We frequently help our clients implement gifting plans to heirs and to charity to aid in removing assets from their taxable estate. In 2023, the gift tax annual exclusion limit (the cap on tax-free gifts) is $17,000 per recipient ($34,000 for a married couple). We can model how gifting to individuals or charities over time impacts the size of a taxable estate and the potential estate tax burden. We can also help maximize potential charitable deductions through different forms of charitable giving (e.g., using a Donor Advised Fund or making a Qualified Charitable Distribution from an IRA).
Depending on the complexity of a situation, it may be beneficial to consult with a tax professional and/or attorney who specializes in estate planning. We regularly provide our clients with referrals to other professionals where a relationship does not already exist. In cases where advanced tax or estate strategies are appropriate, it is important to get our clients’ other financial professionals involved. We ensure that all participating professionals (accountants, attorneys, trust officers etc.) are aware of our clients’ broader circumstances, helping us determine what strategies we ultimately recommend and implement. Should a situation call for an advanced estate planning technique, a trust and estate attorney would be required to draft any legal documents.
Recently, SECURE Act 2.0 was signed into law, and it imposes numerous opportunities and modifications to the regulations on retirement accounts. These developments have opened opportunities for additional savings to tax-deferred and tax-free (Roth) retirement accounts. Additionally, Required Minimum Distributions (RMD) rules have been liberalized. We have already begun advising clients on adjusting their strategies to minimize their overall tax burden.
Unfortunately, Benjamin Franklin was correct! Taxes are a life certainty and a central component of almost every financial planning issue. Eagle Ridge considers taxes when advising our clients on their investment allocation, savings strategies, insurance needs, retirement income, and estate planning. By periodically reviewing and updating clients’ financial plans, we can work together to meet financial objectives, minimize taxes and expenses, and maximize the financial resources dedicated to their goals. Contact us by email or phone for more information and for an initial complimentary consultation.