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Smart Decisions for Inheritance Planning

Financial Planning

The only 2 things unavoidable in life are death and taxes. While neither of these are fun to talk about, making smart decisions around the inevitable can lead to successful outcomes. While it's never pleasant to talk about the death of our parents, or our own demise, planning for an inheritance is an essential part of your overall financial plan. This is an essential part of financial management that helps ensure your family's future is secure. 

At Seaside Wealth Management, we believe in integrating estate planning into your overall financial strategy, so you can retire comfortably and leave your loved ones in a strong financial position. Additionally, if you are receiving an inheritance, making wise decisions with it can set your family up for generations to come. In this blog, we’ll cover the key steps to making smart decisions for inheritance planning.

You Need A Plan

If you know you will be leaving money to your children, it’s crucial to assess their ability to manage it wisely. If your child struggles with finances, consider employing effective estate planning techniques to protect them from potential pitfalls. After all, you don’t want to see a lifetime of hard work, saving, and wealth-building squandered. Having open conversations about financial management is essential to passing along the skills and values needed for your children to be good stewards of their inheritance.

Conversely, if you are the beneficiary of an inheritance, making wise decisions is paramount to setting yourself and your family up for future success. Assess your ability to manage the inheritance effectively. Don’t hesitate to seek professional guidance if you feel the responsibility is beyond your current capabilities. Have a clear strategy for what to do with the money you receive. Whether it’s paying off debt, investing in your children’s future, or ensuring a secure retirement, having a solid plan is key to achieving the best outcomes.


Be Smart With Your Tax Strategy

To maximize the inheritance you leave, it’s crucial to understand the tax implications. For example, funds in taxable accounts (Trust Accounts, Individual Brokerage Accounts, etc.) receive a step-up in cost basis upon your death, allowing your children to inherit the money tax-free and use it as they wish. Conversely, funds held in a traditional IRA are subject to the 10-year distribution rule, potentially creating a significant tax burden if your children are in their high-income earning years when they inherit. This scenario could turn into a tax time bomb, benefiting Uncle Sam the most.

However, money left in a Roth IRA is also subject to the 10-year rule, but all distributions are tax-free for your children. Tailoring your estate plan to your children's financial situations is essential for optimal outcomes. For example, a child in a lower tax bracket would be an ideal recipient for your Traditional IRA, while those in higher tax brackets would benefit more from inheriting your taxable accounts and Roth IRA.

Additionally, consider your own distribution strategy to create a tax-efficient plan that benefits both you and your children throughout their lifetimes.

At Seaside Wealth Management, we can help you navigate these complexities to ensure your legacy is protected and your family’s financial future is secure.

The Powerful Impact of a Step Up in Basis on Your Taxable Account

The SECURE Act has changed the landscape for retirement distributions and inheritance planning. With the new 10-year rule for inherited IRAs, a taxable account often becomes the most tax-efficient way to leave money to your children.

If you sell investments in a taxable account during your lifetime, you could face capital gains taxes up to 20% federally, plus your state’s income tax and the net investment income tax. For Californians, this can total nearly 36%.

However, at your death, the cost basis of your investments is "stepped up" to their market value, allowing your children to sell these investments without paying capital gains tax. At Seaside Wealth Management, we guide you through these strategies to ensure your legacy is passed on as efficiently as possible. Tax-free is always best.

The Benefits of Roth IRAs

A Roth IRA can be a fantastic tool for inheritance planning. Unlike traditional IRAs, Roth IRAs offer tax-free growth and tax-free withdrawals, provided certain conditions are met. This means your beneficiaries can inherit the account and continue to enjoy these benefits. Here’s why Roth IRAs are great for inheritance:

  • Tax-Free Growth: Since contributions to a Roth IRA are made with after-tax dollars, the investments grow tax-free. This allows your money to compound over time without the burden of taxes, maximizing the amount your heirs receive.
  • Tax-Free Withdrawals: When your beneficiaries withdraw funds from a Roth IRA, they won’t owe any income taxes, which can significantly ease their financial burden.

No Required Minimum Distributions (RMDs): Roth IRAs do not have RMDs during your lifetime, allowing the funds to grow as long as possible. This means more money for your heirs when they eventually inherit the account.


Roth IRAs are a smart way to pass on wealth tax-efficiently. Considering Roth conversions when possible can significantly lower your lifetime tax bill. This strategy becomes even more impactful when you factor in the tax savings for your children's inheritance. At Seaside Wealth Management, we help you navigate these decisions to maximize benefits for you and your family.

The Importance of Trusts and Wills

Trusts and wills are fundamental tools in estate planning. They ensure that your assets are distributed according to your wishes and provide legal and financial protections for your beneficiaries.

Wills: A will is a legal document that outlines how you want your assets distributed after your death. It’s essential for appointing guardians for minor children and specifying how your estate should be managed.

Trusts: Trusts offer more control over asset distribution and can provide tax benefits. There are different types of trusts, including:

  • Revocable Living Trusts: These allow you to retain control of your assets during your lifetime and specify beneficiaries for after your death. They can help avoid probate, making the transfer of assets quicker and more private.
  • Irrevocable Trusts: These remove assets from your estate, potentially reducing estate taxes and protecting assets from creditors. By placing assets in an irrevocable trust, you can shield them from certain liabilities, providing financial security for your heirs.

Trusts can be customized to meet your specific needs, whether it’s providing for a special needs dependent, managing estate taxes, or controlling how and when distributions are made to beneficiaries.

Our Approach to Comprehensive Estate Planning

Estate planning is about more than just drafting documents. It’s about creating a strategy that aligns with your financial goals and provides peace of mind. Here’s how we approach it:

Personalized Planning: We tailor estate plans to fit your unique situation, considering family dynamics, tax implications, and long-term financial goals. We take the time to understand your specific needs and aspirations to create a plan that works for you.

Education and Coaching: We believe in empowering our clients with knowledge. We’ll educate you on the various aspects of estate planning, from different trust structures to the tax implications of your decisions. Our goal is to ensure you feel confident and informed every step of the way.

Ongoing Support: Estate planning isn’t a one-time event. We provide ongoing support and adjustments to your plan as your circumstances change. Whether it’s new tax laws or significant life events, we’re here to ensure your plan remains effective and up to date.


Ensuring a Comfortable Retirement and a Secure Future

Our goal is to help you retire comfortably and leave a lasting legacy for your family. Here’s how we do it:

Holistic Financial Review: We conduct a thorough review of your financial situation, including assets, liabilities, income, and expenses. This helps us create a comprehensive plan that addresses all aspects of your financial life.

Goal Setting: We help you define your retirement and inheritance goals, ensuring your financial plan aligns with your vision for the future. Whether it’s traveling the world, supporting a charity, or leaving a legacy for your grandchildren, we tailor your plan to help you achieve your dreams.

Strategic Investments: Our investment strategies are designed to grow your wealth while managing risk. We diversify your portfolio to balance growth potential with stability, providing a reliable foundation for your retirement and inheritance plans.

Tax Efficiency: We optimize your estate plan for tax efficiency, helping to minimize the tax burden on your heirs. This includes strategies like gifting, charitable donations, and leveraging tax-advantaged accounts to ensure more of your wealth goes to your loved ones.

In addition to these steps, we continuously monitor and adjust your plan, ensuring it remains aligned with your goals and the ever-changing financial landscape.

Holistic Financial Review: It's important to conduct a thorough review of your financial situation, including assets, liabilities, income, and expenses, to create a comprehensive plan addressing all aspects of your financial life.

Goal Setting: Make sure to define your retirement and inheritance goals to ensure your financial plan aligns with your vision for the future. Whether it’s traveling, supporting a charity, or leaving a legacy for your grandchildren, we tailor your plan to help achieve your dreams.

Strategic Investments: Designing investment strategies to grow your wealth while managing risk is critical. By diversifying your portfolio, you can balance growth potential with stability, providing a reliable foundation for your retirement and inheritance plans.

Tax Efficiency: Optimizing your estate plan for tax efficiency to minimize the tax burden on your heirs is key. Strategies include gifting, charitable donations, and leveraging tax-advantaged accounts to ensure more of your wealth goes to your loved ones.

Continuous Monitoring: It’s important to regularly monitor and adjust your plan to keep it aligned with your goals and the ever-changing financial landscape.

Conclusion

At Seaside Wealth Management, we understand the importance of planning for the future. Our commitment to your financial well-being goes beyond numbers. We build lasting relationships based on trust, education, and personalized service. Taking a comprehensive approach to inheritance planning ensures your family is set up for success, even after you’re gone. By incorporating tools like Roth IRAs, trusts, and personalized estate planning, we help you create a legacy that reflects your values and provides financial security for your loved ones.

Learn more with Seaside! 🌊

At Seaside Wealth Management, financial education and coaching are crucial for creating peace of mind around your finances and making informed decisions. Check out our articles and videos to help you get ahead in your retirement planning:

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.