It's time we discussed your parent's financial future with our latest episode on tax and estate planning for elderly parents. We promise you'll walk away with actionable strategies to preserve wealth, minimize taxes, and ensure the well-being of your aging loved ones. From setting up trusts to leveraging life insurance, we cover essential tactics to safeguard assets and secure a steady income stream through annuities. Don’t miss our comprehensive guide that offers invaluable insights into maintaining financial stability for future generations.
We'll cover how to maximize wealth transfer and minimize tax liabilities, and learn the advantages of annual gift exclusions and Roth IRA conversions. We will discuss the importance of coordinating with tax planners, estate attorneys, and financial advisors to make optimum decisions for your family's legacy. This episode is packed with expert advice and practical steps to protect against excessive government taxation and ensure proper asset administration. Tune in to fortify your estate planning toolkit!
It's time we discussed your parent's financial future with our latest episode on tax and estate planning for elderly parents. We promise you'll walk away with actionable strategies to preserve wealth, minimize taxes, and ensure the well-being of your aging loved ones. From setting up trusts to leveraging life insurance, we cover essential tactics to safeguard assets and secure a steady income stream through annuities. Don’t miss our comprehensive guide that offers invaluable insights into maintaining financial stability for future generations.
We'll cover how to maximize wealth transfer and minimize tax liabilities, and learn the advantages of annual gift exclusions and Roth IRA conversions. We will discuss the importance of coordinating with tax planners, estate attorneys, and financial advisors to make optimum decisions for your family's legacy. This episode is packed with expert advice and practical steps to protect against excessive government taxation and ensure proper asset administration. Tune in to fortify your estate planning toolkit!
Speaker 1:
So a lot of clients come to us concerned about the financial well-being of their parents and they are also confused about what to do with their parents' wealth. So this is an area that is highly neglected. You look at the baby boomer generation. Look at the debt they kind of left behind. Look at the debt they kind of left behind and we have. Our country, in particular, has a habit of not really thinking long term about financial decisions that are going to impact them many years down the road. Our national debt is growing and growing. Our national debt is growing and growing and there is a lack of planning for many individuals when it comes to elderly and planning for their elderly parents. So today we're going to discuss what is the tax planning opportunities and what should we be thinking about regarding tax planning for our elderly, for our elderly parents? So let's talk about this. So this is a highly neglected topic on tax planning for your elderly parents and the elderly, and what can we do to preserve their wealth and protect them, protect their states and protect their own well-being. So I'm going to share with you today some things that we want to think about in order to best set up our mom, our dad and our grandparents up for success, and also how to look at their assets and their wealth and their future planning. So first thing I want everyone to think about and most people don't think about this until it's too late is about planning for what to do with their heirs and their inheritances and their estates. Now you're going to hear a lot of different ideas from folks that are probably more specialized than us in planning for estates, but what you should think about, at the very least, is setting up a trust. Some of the reasons why is with trusts, you are going to be able to have more control over the future of your assets and also it's going to help you out with some asset protection assets, and also it's going to help you out with some asset protection and, when you die, it's going to help you reduce your legal costs that are associated with going through probate, and any of you who have had to deal with going through probate will let you know that probate is a long and painful process with lots of attorney fees, and if you can be proactive and minimize or prevent this probate process, a trust is going to be instrumental in doing this. Now there are also tax advantages to having a trust in place and properly planning for your estate. I strongly recommend you check out our podcast it was episode 53 on estate planning with Jared Green and we can see instances where there's a tax as high as 40% of the assets that are disposed of through inheritance. If there's no tax planning. Having the trust structure and being proactive with someone who is forward thinking with your wealth is going to create a major impact on you and your family's ability to create lifelong tax savings.
Speaker 1:
Some other things that we want to think about here is having a life insurance policy. So life insurance has lots and lots of benefits. Some of them are going to be tax benefits. Some of them are going to involve protecting you and your future and your heir's future, and also they're going to have asset protection benefits in that if you were to ever lose a lawsuit or if there was ever a judgment against you, they still can't go after your life insurance. So life insurance has been one of those very powerful vehicles that affluent families and ordinary families use to build and preserve their wealth and grow in a tax-advantaged manner. We know already that life insurance you'll hear through some of our conversations life insurance is going to grow and compound over the years and you can take money out by borrowing and not paying any taxes at all from it. So there's all these strategies out there and you can go down tons of rabbit holes on infinite banking, but certainly life insurance is going to help you out with also protecting and preserving your wealth and passing it down to future generations.
Speaker 1:
We also want to consider annuities. So annuities are Annuities are an interesting vehicle in that they are going to be you're going to use life insurance brokers or likely licensed to also provision annuities, and that's going to also be a vehicle that is going to have some tax advantages and produce a more sustainable disposition of your income over time. So the annuity pretty much is going to allow you to invest a certain amount of principal into a financial vehicle that will grow and accumulate and then eventually you're going to have the money come back to you and a portion of it will be taxed. However, the thing about annuities that people enjoy is it allows you to create a steady stream of cash flow going into your future. So we're not really qualified as CPAs to tell you to get an annuity and whether or not you need one, but certainly this should be considered among the many financial vehicles that you decide to invest your money in.
Speaker 1:
Let's talk about real estate, because most of you are coming to us to talk about real estate and how do we look at real estate and think about it? Regarding estate planning, the most important thing and this is foundational provides. This is a foundational concept here, but if we're looking at preserving our wealth and building generational wealth and winning the tax game, we really want to make sure we're taking advantage of the step-up basis of real estate. So, as we know, the real estate gets stepped up to fair market value at our date of death. So when you die, even if you have fully depreciated your real estate, the real estate is going to get stepped up the fair market value. So to give you an example here of how valuable this is, with the step-up basis you buy a property for a million dollars. It's fully depreciated. The building basis is zero dollars.
Speaker 1:
When you die, let's say that property is worth $5 million. Your children inherit the property now worth $5 million. The depreciation starts as though it was purchased at $5 million and that depreciation tax deduction starts all over again and we start writing off the building from day one as though it was a newly purchased asset. This is how you can really create tax advantage, generational wealth, because that depreciation is going to also offset the revenue from this rental property and give you lots of tax advantages. And also, if you wind up selling the property, you're unlikely to recognize a capital gain because it's stepped up to that fair market value. So if you sell it at around the fair market value, there should be no taxes, even though the building is sold for a far greater price than the cost.
Speaker 1:
So when clients come to me, when clients come to me and they say, hey, you know, our parents have all this real estate and they want to get rid of it. They don't want to be landlords, how about they gift it to me or I buy it from them? And I say stop what you're doing right there, keep the real estate in your parents' hands, let them own it until they die, because you're going to see tons of value in that step-up basis where your cost basis gets up to that fair market value. And now you have access to lots of depreciation tax deductions and or you're going to minimize any future capital gains that may take place on the sale. You're also going to see step-up basis in stocks and other assets as well. That may create potential savings on the capital gains. Some other things that I want you to consider here is if you are going to have a large estate, so let's say around once we start looking at estates from five to ten million. Hey, sorry to interrupt, but real quick. Sorry to interrupt, but real quick. If you or anyone you know is interested in using our services or joining our team, email info at markperlbergcpacom. That's info at markperlbergcpacom. All right, let's get back to the show Dollars we want to consider here.
Speaker 1:
There may be potential tax implications when your heirs inherit those estates. So what some people do is they try to chip away at that estate amount to avoid future estate taxes. So they'll do gifts. They'll do gifts to their family. There is an annual gift exclusion. The annual gift exclusion in 2024 would be $18,000 per year. So you wouldn't have to issue any gift tax returns and you can gift $18,000 to each person. Your spouse can also gift $18,000 per person. Your spouse can also gift $18,000 per person. So let's say you and your husband or wife have three kids and eight grandkids, you each can gift $18,000 to each of the children and then another $18,000 each to each of the children. So it's $36,000 going to each, each of those members. So if we were to do it on an annual basis, this would give us the opportunity to minimize the estate now.
Speaker 1:
Another thing I want you to think about here with preserving the wealth of the elderly is what are we doing with the retirement accounts? So when we have tax-deferred vehicles like IRAs and 401ks, your heirs are going to inherit it. You're not going to see a step-up basis from those retirement accounts. So these are somewhat going to be ticking tax time bombs. They could be, because eventually, when the money comes out or if it's going to be converted into a Roth, it's going to be a taxable event. So we want to be proactive here. Think about what is not only what's the tax bracket of you, but what's the tax bracket of the parent, but what's the tax bracket of the children. So to really be proactive and make the most optimal decisions with your retirement accounts, you want to consider the fact that eventually someone's going to be paying taxes on these tax-deferred IRAs and 401ks. So what might be a good time? When might be a good time to roll these into Roth? So let's say you're retired. Let's say you're living on real estate that's depreciated and you're in a $0 basis. You know when your kids inherit these retirement accounts is eventually going to be taxed when they want to pull the money out. Maybe we could take advantage of these really low tax brackets when we convert them into the Roths, and now your children and grandchildren are inheriting the Roths that are going to grow tax-free and you can take the money out tax-free. So having that long-term vision on what we're doing with our retirement accounts can create significant savings for generations to come.
Speaker 1:
What's really important here is, while we can discuss all of these topics, there are state-level nuances and state-level specific taxes and you really want to collaborate with a specialist here. So what's important here is really find a good practitioner who understands the state tax laws, because there's a lot of uniqueness in each state. In particular, we always see some unique scenarios in New York and California when it comes to estate planning and we certainly want to make sure that we are working with a professional who knows how to navigate that landscape. We collaborate with our clients to help them make these decisions, but most certainly certainly you want to make sure that you are working with a specialist here. On top of your tax strategies here.
Speaker 1:
Some other things you want to consider here is we have this exclusion for our estate planning. That is about to change and what we want to think about here is, as of January 1, there's going to be a lifetime estate and gift tax exemption. That's expected to change. If you or anyone you know is interested in using our services or would like to join our team, go to info at markperlbergcpacom. Again, email info at markperlbergcpacom Change pretty significantly here. So what we see here is we have an exemption where none of the estate is taxed to the recipients at an amount as high as $13,000. I'm sorry, $13 million, 13.6 million, and what we would see here is, at least as of right now, it's expected to drop somewhere around five to seven million dollars. So that's going to create a lot of panic in the minds of the estate tax planners and we don't know what's going to happen. Maybe the estate tax is going to change over time, maybe they'll bring it back up, maybe it won't be as steep of a drop. But what's really important here is again that we're working with professionals who are specialized in this and can help you if you are at risk of paying significant estate tax for yourself or your family, that you're staying on top of the ball here and really making sure that you are being proactive in considering all these factors and variables to protect the wealth of you and your family.
Speaker 1:
Some other good resources from our podcast and YouTube page that you may want to check out is we have a retirement account planning conversation with Joe Clark. That's episode 27, where we talk about and what was very interesting that Joe Clark said was that when he is doing tax planning for his clients and for himself, he's not just looking at his retirement account and income. He's looking at the income of him and all his family members when deciding on how to best consider topics such as the maximum amount and the optimal amount to put into the retirement accounts, when and how much to convert into a Roth. Lots of interesting conversations that you can have with a tax planner, and it's going to be even more impactful when that tax planner is aligned with your estate attorney and when they are aligned with your financial planner and advisor and anyone else who's going to impact your major business tax and financial decisions. So when we think about all these conversations, it's extremely important that we look at so many different variables that are going to be relevant to you.
Speaker 1:
How are we going to protect our assets, minimize probate and make sure that they are properly administered after the passing of us and our parents?
Speaker 1:
How are the elderly and how are your parents going to own their assets and take advantage of the step-up basis?
Speaker 1:
Is life insurance still a possibility?
Speaker 1:
Maybe now is a good time to start thinking about life insurance for yourself as a vehicle.
Speaker 1:
What kind of planning do we have to do if we have a large estate so we can minimize our taxation on the inheritance of that estate, and what kind of gifting strategies are going to be considered here? Also, there's lots of charitable strategies as well that the wealthy are using to preserve their legacies and also have some tax advantages, and that's going to be another conversation, that's another podcast. We also want to consider here what we're doing with our retirement accounts as well, and all of these things allow us to preserve the legacies of our parents and ensure that their assets are properly protected from excessive taxation by the government and they are also properly going into the right hands. So I hope you found this helpful and if you want to learn more, obviously you can talk to us at markperlbergcpacom, but also, you will want to collaborate with someone who is a specialist in the realm of tax planning and estate tax planning, who can align with your CPA and really make sure that you're making the most effective decision.
