The Chicken-or-Egg Estate and Tax Planning Conundrum

On Behalf of | Nov 10, 2021 | estate and tax planning, Estate Planning

James Blasé, writing in Financial Advisor Magazine, describes what he calls “dueling approaches” to Roth IRA conversions. In deciding the optimum annual amount to withdraw from a taxable IRA, Blasé explains, there are two basic alternative approaches:

  1.  The “tax table approach” – here the focus is on not causing the couple in the example to be pushed into a significantly higher current income tax bracket (keeping them in the 12% federal income tax bracket and out of the 22% bracket).

2. The “amortization table approach,” which focuses on lowering the total income tax liability of the couple and their children, after the couple’s death.

While the author acknowledges that there are countless different client fact patterns that financial advisors might encounter (and that therefore there can be no one-recommendation-fits-all), the purpose of the article is to encourage clients and their advisors to explore options for total income tax savings over both generations.

Although at Geyer Law, we do not offer tax advice, instead working in cooperation with our clients’ tax advisors, the estate planning process itself presents a similar conundrum in that each planning tactic must take into consideration the needs of more than one generation. A customized estate plan secures hard-earned assets so they may be used to satisfy the known (and unknown future) needs of the owners, yet protects the assets for the benefit of dependents and heirs.

“Does your estate plan pass the multigenerational test?” JR Gondeck and Vanessa Martinez ask in Forbes. In fact, the overwhelming majority of estate plans fail this test, and are therefore not adequate to ensure optimal generational wealth transfer, the authors observe, recommending in favor of holistic estate planning, using an advisor who understands both (or all three) generations’ wealth and circumstances.

No matter how close extended families are, they don’t always share financial information. Yet, how your parents structure their estate plan, including the use of trusts, gifts, IRAs, insurance, pensions, and wills, can have a significant effect on how you should set up yours, Wilmington Trust’s Mark Oller explains.. .

While the asset owners’ interests and desires are the starting point for the work, a multi-generational mindset is an advantage in both IRA distribution planning and estate planning.

– by Jude Byanski. Attorney with Rebecca W. Geyer & Associates