How should my parents start dispersing $4.5M in assets to minimize estate tax?

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  • #96959 Reply

      My parents have amassed about $4.5 million in assets (stocks, cash, property & belongings). Our state heavily taxes any estate over $1M, and my mom can’t stand the thought of being taxed again.

      She wants to start disbursing income to my 2 siblings and I to lower the potential tax liability. She didn’t want to do deathbed gifts, she wants to do it slowly over time.

      Since I’m the most financially focused kid, she’s come to me for advice. But admittedly this is beyond my knowledge.

      How would you start dispersing funds? What should we be considering?

      They have a revocable living trust and estate plan set up. Just too much in assets.

      Note: I have a feeling a fair amount of “asset value” is tied up in antiques.

      How do we do this?

      #96960 Reply

        I don’t have any ideas, just came by to say how obnoxious it is that the government thinks her money is actually their money. Good luck!

        #96961 Reply

          This really should be discussed with an estate attorney who specializes in taxation. That isn’t me full disclosure. Just a guy who studies tax stuff for fun.

          In 2024, each parent can give up to $18,000 per year to each child (or any individual) without incurring gift tax or using up their lifetime gift tax exemption.

          This means your parents could potentially give $36,000 per year to each of you three children ($18,000 from each parent), totaling $108,000 annually without tax implications.

          Get professional appraisals for valuable antiques. Accurate valuations are crucial for gift and estate tax purposes.

          Consider gifting appreciated assets, as the recipient would receive a stepped-up basis.

          Another option is funding 529s for grandchildren.

          Or if she had the appetite, she should cut all ties to the existing state and move to a state without those taxes. (Is your state NY or CA?)

          Read on: Will my parent’s lack of tax filing be an issue for me when managing their estate?

          #96962 Reply

            Just to clarify, very little money will be “taxed twice”. The vast majority of the estate will consist of retirement accounts and unrealized capital gains. Federal law provides a full step up in basis, so not only is it not taxed twice federally, it’s not even taxed once!

            As far as gifting, sure, she can gift $18k every year to each member of the family. You’ll have to read up on the state laws to see what happens to amounts over that.

            #96963 Reply

              Hooray for your mom! much better to gift while alive and get to see your kids enjoy it.

              1. your parents can each gift up to $18,000 a year to each child (and each partner or spouse if they would like). so, you could receive $18,000 from your mom and $18,000 from your dad. your partner could receive a check from each of them, ask well. that could be up to $108,000 (or $216,000 with partner gifting) each year.

              2. they can gift to cover educational expenses for children or grandchildren if so inclined.

              3. they can make larger gifts, as well – they simply need to file a form with their taxes.

              #96964 Reply

                Must be in Oregon. The 1 million limit has been around for years… You need a meeting with an estate attorney and a CPA. We do this stuff every day in Oregon.

                #96965 Reply

                  That’s pretty easy to unload.

                  If they end up in long term care that’s gone in a handful of years.

                  #96966 Reply

                    I would highly recommend you and your parents read Die With Zero. It was such an enlightening book for me. It dealt with a lot of the “why?” To do this before the death bed. Great insight!

                    #96967 Reply

                      Consult with an estate tax attorney but the basic idea is that she establishes and irrevocable trust with anyone she wants to give to as the beneficiaries and then she can give up to the gift tax limit annually. The attorney will maintain the ledger.

                      #96968 Reply

                        Your parents need the advice of an estate planning attorney. Do they have a trust and wills? So much to tackle here without professional advice.

                        #96969 Reply

                          I’m in a similar situation as your parents. I live in Washington state and assets are already well above the Washington estate tax threshold.

                          In 2006 Washington state created an estate tax that taxed estates over $2M. Then they passed a law to index the estate tax to some version of CPI. Unfortunately, that version of CPI was discontinued around 2018 and the legislature has refused to index the tax brackets since. Currently the estate tax kicks in at $2,193,000, starting at 10% and quickly rising to 20%.

                          To limit how much of my estate gets taken by the state, last year I started gifting my two kids cash. My son and I have accounts at BofA. I just initiate a direct transfer after giving him a heads up about it. My daughter is a little more complicated – I send her a check from my bill payer.

                          I’ve told them that cash gifts will vary depending on how the market does. Also I will not be providing gifts in down markets if it brings me below a withdrawal rate that makes me uncomfortable. I have chosen a cap of about 30 times my annual budget. In other words, if my investable assets are more than 30 times my annual budget, there will be cash gifts that year. The gifts are not intended to bring my assets down to 30 times my annual budget. Instead the gifts are slightly less than the federal reporting requirement ($18,000 per recipient) with the 30x setting a cap on the gift pool’s size. The 30x figure will likely go down as I get older.

                          To complicate things, I have 5 grandchildren. When the grandchildren enter college in the next few years, I will be helping with funding. I haven’t worked out the details yet, but I’ll probably be willing to go deeper into my assets to cover the grandkids’ tuition – but not so deep as to place my retirement budget at risk.

                          My current thought is to provide each child the lesser of 25% of college tuition or $10,000 in a given year. The $10,000 would require them to show me receipts totaling at least $40,000. I haven’t fixed these numbers in stone yet, but I think these are likely if I add an inflation adjustment to the $10,000 cap. At the moment I’m willing to draw down my assets to 25 times my budget to fund their college tuition.

                          I’ve also told my two kids any cash gifts to them may be reduced by funding their kids’ college tuition.

                          And yes, I know I could probably set up a 529 plan for the group or for each separately. I may do this in the future after I’ve had some discussions about segregating funds that way and the relative tax advantages of funding such a plan … as well as the potential disadvantages when my grandkids submit their FAFSA applications.

                          To put this in perspective, I’m 59 and my current assets are 36.5 times my (estimated) annual budget needs so the gifting will continue into the foreseeable future.

                          #96970 Reply

                            As everyone else has said, talk to a professional in the state in question. Estates like that of your parents very rarely pay any serious taxes at death if structured properly. Spend 5K on a pro to set it up correctly and be done with it. This is not something you need to worry about.

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