Legacy Planning: Keep Taxes in Mind

If you’re planning to leave a financial legacy to your family or favorite charity, be sure to work with your financial professional, estate planning attorney and tax specialist. They can help ensure that your documents are drafted properly and consider taxation of your plan.

Your Accounts

Start by confirming that your accounts are titled appropriately and beneficiary designations are up to date. Review designations periodically, especially if your intentions or tax laws change.

Your Strategy

You may be tempted to withdraw funds for living expenses from taxable investment accounts to take advantage of lower capital gains rates. But that strategy could leave your heirs with a large tax bill. Why? Withdrawals from a traditional IRA or qualified retirement plan account are taxed at ordinary income tax rates.

However, appreciated assets, such as stocks, generally receive a step up in basis at the owner’s death, so any appreciation since you acquired the investment won’t be taxable to your heirs. (This benefit may be limited in the future.)

Work Arounds

• Consider converting all or a portion of the money in a traditional IRA or qualified retirement account to a Roth IRA. Make sure you have other assets to pay income taxes on the conversion.


• Naming a charity as the beneficiary of a qualified retirement plan account or traditional IRA allows the organization to receive the assets tax free. Your estate may also receive an estate tax deduction for the donated assets.

Find rated charities at https://www.charitynavigator.org.