Biggest Get Out of Tax-Free Card For Thanksgiving | Stewardship Concepts Financial Advisors

Happy Wednesday! Noah here. I’m posting this blog early because today’s blog is about money and family during Thanksgiving and Christmas. Typically, religion, politics, and finances are the landmine topics that are smart to avoid during holidays. But finances are something we should talk about with family in a healthy way. Studies have shown that the 1% share their get-out-of-tax-free secrets during Thanksgiving. Today, I will share the biggest get-out-of-tax-free card and how to give the greatest gift to family—money transparency.

Tax Problem

A wave of wealth transfers over the next few decades is nicknamed the silver tsunami. This conversation came up this week in a meeting with a client. Estate tax is not talked about, but we’ve seen it can easily cost hundreds of thousands in taxes. At the last spouse’s death of an estate, there is an estate tax on the Federal level, and if you’re living in Spokane, there is a Washington estate tax as well. The exemption levels are at 13M at the federal level, but with Washington, it’s 2.193M, one of the lowest states in the country. All their assets will be added and taxed on the amount above the exemption level. The tax begins at 10% and increases to XYZ. Most clients don’t have to deal with the federal estate tax. It’s more common for us as financial advisors to help avoid estate tax at the state level.

3 Get-Out-Of-Tax Secrets

There are three strategies to avoid estate tax. The first is for couples. This takes advantage of the Washington state estate exemption rules because every person gets an exemption, but it’s a use-or-lose-it rule. Make sure your will is set up so that at the first spouse’s death, assets in their name/community property can be used to fund a bypass trust to use the exemption. The remaining spouse can still use the money in the trust, but it doesn’t count toward the estate when they pass. This doubles the exemption amount from 2.193M to 4.386M. To fully take advantage of this, ensure your will is properly set up and you have balanced your investment accounts as much as possible to fund the bypass trust with assets, especially in a non-working spouse situation.

The second strategy is for those who are leaving their estate to children. This involves giving money to heirs early to reduce the estate’s value. You don’t want to give so much that it would risk retirement. But if done strategically, it can be a great way to reduce your taxes and help impact your kid’s future because they will receive the money at a more impactful time. Work with your financial advisor to see what amount makes sense for your financial plan. There is a gift tax exemption limit per person of $18k per person. But this means each parent could gift $18k to their children and spouse for a total transfer of $72k (4 X $18k). But it’s not the end of the world if you go above the $18k per year gift tax exemption. As of 2024, you get a lifetime limit of $13.61M to gift before you owe any gift tax. If you go over the $18k limit, you must file a gift tax return (which you can have your accountant fill out).

The third strategy is for those who are charitably inclined. This strategy revolves around giving gifts to charity before you pass away. There are a lot of powerful strategies. If you are already leaving some of your estate to charity in your will and are exposed to estate tax, you’re paying more tax to Uncle Sam than you need to. Gift to charity now. These are the most powerful gifting strategies we help our clients implement. Our clients gift low-basis stock, land, or real estate to charity utilizing a charitable gift annuity. This strategy turns even a non-income-producing asset into a lifetime income stream, helps charity, avoids capital gains, and receives an immediate charitable deduction. Another method is setting up a donor-advised fund and gifting low-basis stock. This avoids capital gains, receiving a charitable deduction, and investing the assets tax-exempt. The client then gets to direct the money out of the donor-advised fund to charities at their discretion for the rest of their lives. The last method I’ll mention is using someone’s 401k and rolling it into an IRA. At age 70.5 they can give directly to charity and avoid income tax completely. All these strategies are powerful. The feedback from many of our clients says it’s fulfilling (on top of saving tax) to see the impact of their money in these strategies while avoiding tax.

Money Transparency

Conversations about money and family can feel dark, morbid, and awkward. But it doesn’t have to. If we all approach the conversation from a stance of wanting to help, it will avoid a lot of awkwardness. We need more money transparency. Uncertainty about what will happen leads to anxiety, hurt, and confusion for families. Money transparency is the greatest gift to family.

Transparency In Action

Talk with your parents or kids, whether that’s gifting earlier or asking if they know about Washington State estate tax.

Talk about who the executor of the will is.

Let the heirs know who the executor is and how the will is set up.

Confirm with the executor where they can find your will, important documents, insurance policies, and financial accounts. Introduce them to your financial advisor, insurance agent, accountant, and attorney.

Help your family

When someone passes, it can be very stressful, and it is already an emotional time. Set up your will and POA correctly with a local attorney. Simplify your estate, consolidate investment accounts, and cancel excess life insurance policies. Have that conversation. Make money transparency a part of your legacy that will be passed down through generations.

Set up a meeting with one of our Spokane financial advisors.

We have availability. If you know someone who can use our help, please share our website, where they can make a no-cost, no-commitment discovery call.

Happy Thanksgiving! I'm very thankful to be part of such a great Stewardship Concepts team and to have such awesome clients. Thank you for joining me today. I'll talk to you soon.