Inheritance Planning with Agemy Financial Strategies

Inheritance Planning with Agemy Financial Strategies

January 23, 2023

Inheriting wealth and managing an estate can be a complex and emotional process. It is important to remember that inheriting wealth is not just about the money, but also the responsibility that comes with it.

Death is not something anyone likes to talk about, yet it’s an unavoidable part of life and something you must prepare for, especially when you have people who depend on you financially. Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death. An effective estate strategy can spell out your healthcare wishes and ensure that they're carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so.

One of the most important decisions you can make as you plan for the distribution of your wealth is who to name as your beneficiaries. Most retirees name their spouse and/or children as their beneficiaries, but it doesn't always have to be planned that way.  

Here are a few tips to consider as you make this decision.

Consider Your Heirs and Their Financial Needs/Responsibilities

It is important to consider the current financial situation of your beneficiaries and their ability to manage the inheritance responsibly. If you have beneficiaries who are still in school, have large debts, or are otherwise financially unstable, it may make sense to hold off on leaving them a large inheritance until they are in a better position to handle it. Once you have decided on your beneficiaries, remember to factor in the following:

  • Review the beneficiaries on all accounts.
  • Changing beneficiaries may require your spouse's consent.
  • List secondary beneficiaries in case your primary beneficiary dies before you.
  • Your retirement accounts pass to beneficiaries without going through probate court, but if you leave a retirement account to your estate, it may have to go through probate before the assets can be distributed.

Long-term Impact of Your Inheritance

Inheriting wealth can be a great opportunity, but it can also be a source of stress and conflict if not handled properly. Consider how the inheritance may affect the beneficiaries' relationships with each other and with you.

Another important step is to determine the best way to distribute the assets. This may involve selling real estate or other assets, or it may involve holding onto them and renting them out. It is important to consider the needs of all beneficiaries, as well as any potential tax implications, when making these decisions.

Consider Charitable Giving

If you're not sure who to leave your wealth to, consider leaving it to a charity or organization that aligns with your values and passions. Inheriting wealth can provide an opportunity to make a difference in the lives of others, whether it be through charitable donations, supporting a cause you care about, or investing in socially responsible initiatives. 

When considering charitable giving as part of your estate plan, there are a few things to keep in mind:

  • Research and Select charities that align with your values and passions.
  • Understand the different types of charitable giving - charitable trusts, charitable gift annuities, and charitable remainder trusts.
  • Always consult with a financial advisor or attorney.
  • Be thoughtful about your timing.

Tax Implications

Estate Tax is a tax on property (cash, real estate, stock, and other assets) transferred from deceased persons to their heirs. A state applies a tax rate to the value of an estate that exceeds a certain threshold; both the rate and the exemption threshold differ by state. A typical state with an estate tax exempts $2 to $5 million per estate and applies rates ranging from 1 percent to 16 percent to the value of property left to any heirs except a spouse. On average, fewer than 3 percent of estates — very large ones owned by the wealthiest individuals — owe state estate taxes.

The estate tax is different from the inheritance tax. Referred to as the “death tax”, inheritance tax is levied after the money has passed on to the heirs of the recently deceased.

There is no inheritance tax in Colorado. Some states might charge an inheritance tax if the decedent dies in the state even if the heir lives elsewhere. In Kentucky, for instance, inheritance tax must be paid on any property in the state, even if the heir lives elsewhere.

Colorado also has no gift tax. The federal gift tax exemption is $16,000 per recipient per year for 2022 and $17,000 per recipient per year for 2023. Gifting one person more than that limit in a single year will count against your lifetime exemption of $12.92 million.

If you live in Connecticut however, there is an estate tax. As of 2023, there is a flat estate tax rate of 12%. There is no inheritance tax in Connecticut. However, another state’s inheritance tax may apply to you if your grantor lived in a state that has an inheritance tax. 

Seek Professional Advice

Seeking professional advice is crucial when it comes to inheritance for many reasons. Here are a few reasons why:

    • Legal considerations - it is important to consult with a financial advisor and/or attorney to ensure that your estate plan is legally sound and that your beneficiaries are protected. 
    • Tax implications - As seen above, it’s also greatly beneficial to understand the tax implications of these assets to ensure that you are making the most of your inheritance.
    • Investment and asset management - Inheriting assets, such as real estate or stocks, can be a great opportunity, but it can also be a source of stress and conflict if not handled properly. 
    • Communication -  Proper communication with beneficiaries can help prevent misunderstandings and conflicts.

Final Thoughts

It is important to carefully consider who you want to inherit your wealth and how you want it to be distributed. By taking the time to carefully consider who you want to inherit your wealth, you can ensure that your legacy is one of love and support for your family and the causes that you care about.

Working with a qualified Fiduciary financial planner is a great way to ensure that your finances are in good standing now and in the future. It's important to have a trusted advisor at your side when it comes to your family's finances—someone who can help you make informed decisions about estate planning, retirement planning, and everything else in between.

At Agemy Financial Strategies, our mission is simple: we want our clients to feel confident knowing they have someone looking out for them and their estate planning needs. To schedule a consultation and discuss your options for estate planning, contact Agemy Financial Strategies here today.