You can reduce your income tax today while at the same time leaving a legacy for your family.
This is not about estate tax.
This is for anyone who owns a home, or business, or investments they would like to leave their family.
This is looking at the interplay between income tax planning and estate planning. This is a remarkable opportunity to get your assets to your family the right way and at the same time reduce your income tax.
Let’s learn how income tax planning and estate planning work together to create a better life for you today and a better life for your family tomorrow.
To further dive into this topic, Tom had Andrew Howell, an estate planning attorney who understands income tax, on his podcast.
Remember, your team should include an estate planning attorney. It is especially important to have one who understands the massive interplay between income tax and estate planning. Your estate planning attorney must have a good relationship with your tax advisor and communicate regularly with him or her.
According to Andrew, every estate plan is individualized and must account for the goals of the family and the family dynamic. It involves not only wills and trusts but also the management of your estate while you’re still alive. Effective tax planning maintains tax efficiency within your estate. Asset protection planning is an important facet as well.
To further understand how tax planning and estate planning work together, it’s important to determine what the family needs, its goals, and how to make sure the next generation receives the assets in the most efficient way to maintain the most power.
Tom finds that control is very important to his clients. You want to make sure your family is taken care of when you die, and you will want the income tax benefits now. You may want to create passive income by transferring assets to your child but still retain control since you want to continue using the assets. You can actually transfer those assets in a tax efficient way and have the best tax benefit. There is a lot of flexibility with regards to transferring assets and retaining control. You might transfer it for estate purposes and not transfer it for income tax purposes and vice versa.
It’s important to understand that it takes meeting several times over 3-6 months to put an effective plan and strategy together. Tom’s first meeting involves spending an hour asking questions to fully understand. He wants to understand not only your assets, but also your goals and your relationship with your family and your dependents.
It is important to consider the income tax consequences for certain trusts and investments, especially with regards to children reporting income on their individual tax returns. This is why it’s important to talk about money with your children. Tom has seen where income tax plans have ruined kids’ marriages. It’s important to build flexibility in these plans because of changes in your life.
As Andrew points out, make sure your planning can evolve and change since life, family dynamics, and the tax law will change. Even if you don’t have many assets, you still want to take care of your family, maintain control of your assets, and reduce your income tax.
Andrew recommends doing your estate planning first, so you are taking control of a lot of important decision making within your planning and family protection. Make sure minor children have a guardian and make sure assets pass directly to a spouse or children. 70% of the population doesn’t have an estate plan. It’s uncomfortable to talk about death and taxes, but you need to do it. If you are in the 30% of the population that does have an estate plan, make sure you review it and update it. Andrew says that he did a study and found it had been an average of 15 years since the people in the study had reviewed their estate plan. Changes to your life and to the tax laws occur over that time. It’s extremely important to meet with your lawyer and have it updated.
Remember to set expectations with your children. It’s your job to provide financial literacy training for them.
Also, remember that your income tax planner and your estate planner should be in full communication with each other. Your accountant and your attorney must talk with each other. This allows you to get your numbers and your language right so that everything works properly. Your estate plan works from the language standpoint to protect your assets and distribute them properly, which is your attorney’s job. Your accountant works from a numbers standpoint since there’s a dollar value associated with that legacy in your family’s mind. This dollar value must be accurate. Your accountant must be aware of all the changes in the tax law to make sure you are on top of your planning.
Remember, when your income tax planning comes with your estate planning, you’re going to reduce your income taxes now and provide for your family in the future. Since you are reducing your income tax now, you’re going to have more money to build wealth. You want to build a legacy and plan for your family to make sure they are taken care of when you die. Reducing income tax now is a major part of that, which is what TFW Advisors® is all about. When you combine this with estate planning, you’re going to end up with way more money and way less taxes.
Want help finding a tax advisor who can help you make way more money and pay way less tax? Book a call with TFW Advisors® today!