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Discover how to implement tax-efficient inheritance strategies to maximize your wealth transfer, minimize tax liabilities, and ensure a secure financial future for your loved ones.

Tax-Free: Inheriting From Your Spouse

As of 2021, the federal estate tax exemption for a married couple is $23.4 million. It is shared: what one spouse does not use can be “ported” over like a canoe and used by the next to shelter her estate.

Tax-Free: Inheriting From Someone Else

A Roth IRA can be inherited by your spouse or rolled over into her Roth IRA. It can then be inherited by your children, by your grandchildren and on and on earning money tax-free and withdrawing it tax-free.

Tax “Deducted”

Inherited stock is income tax-free and saves capital gains and NIIT tax later on. It is inherited at the price on the day of death (which hopefully is higher than the price at which you bought it.) When it is sold, there is a smaller difference between this and the price at which it is sold so there is less capital gains and less net investment income on which to pay tax.

Tax Deferred

Family limited partnerships are a common way to pass assets from one generation to another. Any payments which a partnership makes to someone are only taxed as his ordinary income. Capital gains and net investment income are also only taxed at the partner level. Capital losses stay with the partnership. In a sense, a family limited partnership might be a tax managed investment. But it can also pay tax owner-employees and other employees tax-deductible benefits which are not taxed to the employee.

Uncle Sam loves small business, but that is another kind of investing.

 

Elder law attorney, Terry Garrett, CELA, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.

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