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Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes
Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

Yahoo

time3 days ago

  • Business
  • Yahoo

Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

The United States is about two years into a Great Wealth Transfer that will see an estimated $84.4 trillion in assets pass from older to younger generations by 2045. Generational wealth preservation is a priority for many of these families, and for some, minimizing tax liability is an important way to achieve it. Trending Now: Learn More: Several types of tax can impact wealth transfers. They include estate tax (40% in 2025), as well as capital gains tax on appreciated assets and ordinary income taxes on tax-qualified accounts, according to Matthew Chancey, Certified Financial Planner and author of 'Tax Alpha Solutions: Effective Tax Management Strategies For High-Net-Worth Investors.' In 2025, estate tax only applies to estates that exceed $13.99 million ($27.98 for married couples) in fair market value, per the IRS website. Beginning next year, the exemption increases to $15 million, according to the Tax Foundation. However, Chancey noted even if your estate isn't impacted by estate tax, your heirs could still have capital gains and income tax to deal with. GOBankingRates spoke with Chancey and other financial advisors about the strategies they use to help their clients minimize taxes on transferred wealth. Take Advantage of Step Up in Cost Basis 'One of the best parts of the tax code is called 'stepped up cost basis at death,' which means when our parents pass on and leave assets to us as heirs […] capital gain taxes can be avoided since the assets are now considered to have stepped up their cost basis to current FMV [fair market value], thus eliminating any capital gains,' Chancey said. You can use this strategy for a variety of appreciating assets, including taxable brokerage accounts and real estate. To visualize how this works, say the cost to acquire your home (its cost basis) was $200,000, and its fair market value is $400,000 now. If you gift the home to your child and they later sell it for $500,000, they'll pay capital gains tax on $300,000 ($500,000 less the $200,000 cost basis). If, on the other hand, they inherit the house and sell it for $500,000, they'll only pay capital gains tax on $100,000 — $500,000 less the stepped up basis of $400,000. Consider This: Reconsider Joint Ownership Some families like to jointly title property as a means of estate planning, according to Allison Harrison, founder and principal attorney of ALH Law Group, which specializes in estate planning for the LGBTQ+ community. However, this approach is problematic. 'The property is now subject to all the owner's creditors, and the survivor does not get a step-up in basis for capital gains purposes,' Harrison said. Take Out Permanent Life Insurance 'Life insurance is a great way to provide access to capital today, but grow it in a tax free way for the beneficiaries,' Harrison told GOBankingRates. A properly structured whole life policy, for example, is a permanent life insurance policy that can accrue interest on a tax-deferred basis and earn dividends tax-free, per Guardian. Under most circumstances, your beneficiaries won't have to pay income tax on insurance money that passes to them directly, in one lump sum, according to the IRS. Keep Gifts at $19,000 per Year or Less You pay gift tax of up to 40% if your gifts exceed the lifetime limit of $13.99 million (for 2025). For tax year 2025, gifts of up to $19,000 per year, per recipient, don't count toward the lifetime limit. Nor do they count toward your $13.99 million estate tax exemption, as they do if they exceed $19,000. The rules are the same for the generation-skipping tax on gifts to anyone at least 37.5 years younger than you, per TurboTax. 'Hugely important for people over the $15 million exemption level [for 2026]. That is potentially a double tax without planning,' warned Matthew Wiley of Wiley Law. You can work around the gift limits entirely by paying the recipient's tuition, health insurance or unreimbursed medical bills instead of gifting them cash or other assets. These payments are non-taxable as long as you pay them directly to qualified schools or to insurance companies or healthcare providers, according to Jackson Hewitt. Place Assets in an Irrevocable Trust A trust allows a third party, called a trustee, to hold assets you transfer into the trust for beneficiaries you designate. After you die, the trustee distributes the assets to the beneficiaries, according to Fidelity. An irrevocable trust can't be changed, but it can minimize estate tax and your heirs' income tax liability, while also shielding your estate from creditors and lawsuits. Wiley named the following irrevocable trusts as his favorite strategies for shielding wealth transfers against tax: Spousal lifetime access trust Irrevocable life insurance trust Domestic asset protection trust (available in select states) More From GOBankingRates 6 Big Shakeups Coming to Social Security in 2025 This article originally appeared on Top 5 Estate Planning Strategies To Avoid 'Great Wealth Transfer' Taxes

3 Ways Homeowners Could Benefit From The ‘Big, Beautiful' Bill
3 Ways Homeowners Could Benefit From The ‘Big, Beautiful' Bill

Yahoo

time3 days ago

  • Business
  • Yahoo

3 Ways Homeowners Could Benefit From The ‘Big, Beautiful' Bill

Now that One Big Beautiful Bill Act (OBBBA) has been signed into law, the final version offers some good, and not so good consequences for Americans. Perhaps there's one silver lining: Certain parts of the bill could benefit homeowners and potentially save them money. Explore More: Read Next: Some of these are because of provisions that were part of the Tax Cuts and Jobs Act (TCJA) that President Donald Trump signed back in 2017. Here are some ways you can benefit as a homeowner. Lower State and Local Taxes The OBBBA effectively raises the state and local tax (SALT) deduction to $40,000 for those earning up to $500,000, compared to the previous $10,000 limit, according to the Tax Foundation. Currently, this SALT deduction is set to expire in 2030. While this provision isn't specifically just for homeowners, they could benefit you to deduct the amount of state and local taxes you pay when you file your federal tax return. Meaning, if you pay a high amount in state income taxes and property bills, this extended SALT cap could save you a significant chunk each year. According to Newsweek, it could even affect the housing market in these general areas, making homes more affordable there. For example, reports that around 40% of homeowners in New Jersey pay over $10,000, with New York coming in a close second at around 26%. So if you live in states that don't have high taxes, or don't have a state income tax, you may not benefit as much from this provision. Be Aware: Lower Homeowners' Taxes According to the IRS, the ability to deduct mortgage insurance from your itemized federal tax return was phased out, until now. This type of insurance kicks in for homeowners who make a down payment of less than 20% for conventional mortgages, per the Consumer Financial Protection Bureau. In 2021, the last year when you were able to qualify for this itemized deduction, U.S. Mortgage Insurers found that homeowners received a $2,364 average deduction. Remember, you will need to itemize your deductions in order to take advantage of the opportunity to deduct what you paid in mortgage insurance. For reference, the standard deduction has increased to $15,750 for single taxpayers, $31,500 for spouses filing jointly and $23,625 for head of household. There are also other itemized deductions that have been limited, so take the time to figure whether you'll be able to save more itemizing or take the standard deduction. In other words, if the standard deduction is higher than what you have in itemized deductions, you're better off foregoing the mortgage insurance deduction. More Affordable Housing Opportunity Zones are areas designated in the U.S. that are considered low or economically distressed areas. Businesses that invest in these areas receive tax incentives to encourage more growth. One of these investments include real estate and housing. While many build affordable rental housing, there is the opportunity to create more affordable homes for purchase, as well, per the Mortgage Bankers Association. Considering that in the past few years the real estate market has seen low inventory levels, this incentive could mean those who can't afford a home before, can. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth The 5 Car Brands Named the Least Reliable of 2025 This article originally appeared on 3 Ways Homeowners Could Benefit From The 'Big, Beautiful' Bill Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you
Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you

NBC News

time4 days ago

  • Business
  • NBC News

Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you

It's been about two weeks since President Donald Trump 's 'big beautiful bill' became law, and financial advisors and tax professionals are still digesting what the sweeping legislation means for clients. Meanwhile, several changes are effective for 2025, which will impact tax returns filed in 2026. While the Trump administration has been promoting ' working family tax cuts,' the legislation's impact depends on your unique situation — and some updates are complex, experts say. 'There are just so many moving pieces,' said certified financial planner Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant. Currently, many advisors are running projections — often for multiple years — to see how the new provisions could impact taxes. Without income planning, you could reduce, or even eliminate, various tax benefits for which you are otherwise eligible, experts say. When it comes to tax strategy, 'you never want to do anything in a silo,' Guarino said. Here are some of the key changes from Trump's legislation to know for 2025, and how the updates could affect your taxes. Trump's 2017 tax cut extensions The Republicans' marquee law made permanent Trump's 2017 tax cuts — including lower tax brackets and higher standard deductions, among other provisions — which broadly reduced taxes for Americans. Without the extension, most filers could have seen higher taxes in 2026, according to a 2024 report from the Tax Foundation. However, the new law enhances Trump's 2017 cuts, with a few tax breaks that start in 2025: The standard deduction increases from $15,000 to $15,750 (single filers) and $30,000 to $31,500 (married filing jointly). There is also a bump for the child tax credit, with the maximum benefit going from $2,000 to $2,200 per child. If you itemize tax breaks, there is also a temporary higher cap on the state and local tax deduction, or SALT. For 2025, the SALT deduction limit is $40,000, up from $10,000. The higher SALT benefit phases out, or reduces, for incomesbetween $500,000 to $600,000, which can create an artificially higher tax rate of 45.5% that some experts are calling a 'SALT torpedo.' This creates a 'sweet spot' for the SALT deduction between $200,000 and $500,000 of earnings, based on other provisions in the bill, CPA John McCarthy wrote in a blog post this week. Trump's new tax changes for 2025 Trump's tax and spending bill also introduced some temporary tax breaks, which are effective for 2025. Some of these were floated during his 2024 presidential provisions include a $6,000 'bonus' deduction for certain older Americans ages 65 and over, which phases out over $75,000 for single filers or $150,000 for married couples filing jointly. There are also new deductions for tip income, overtime earnings and car loan interest, with varying eligibility requirements. This chart shows a breakdown of some of the key individual provisions that are effective for 2025 compared to previous law. Premium tax credit 'subsidy cliff' returns During the pandemic, Congress boosted the premium tax credit through 2025, which made Marketplace health insurance more affordable. But Trump's legislation didn't extend the enhanced tax break, which could raise Affordable Care Act premiums for more than 22 million enrollees if no action is taken, according to KFF, a health policy organization. That could impact enrollees when choosing ACA health plans this fall, according to Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida. Starting in 2026, enrollees need to prepare for the ACA subsidy cliff, where enrollees lose the premium tax credit when income exceeds the earnings thresholds by even $1, he said. Currently, most ACA enrollees receive at least part of the premium tax credit. However, the subsidy cliff means enrollees lose the benefit once earnings exceed 400% of the federal poverty limit. For 2025, that threshold was $103,280 for a family of three, according to The Peterson Center on Healthcare, a nonprofit for healthcare policy, and KFF.

Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes
Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

Yahoo

time4 days ago

  • Business
  • Yahoo

Top 5 Estate Planning Strategies To Avoid ‘Great Wealth Transfer' Taxes

The United States is about two years into a Great Wealth Transfer that will see an estimated $84.4 trillion in assets pass from older to younger generations by 2045. Generational wealth preservation is a priority for many of these families, and for some, minimizing tax liability is an important way to achieve it. Trending Now: Learn More: Several types of tax can impact wealth transfers. They include estate tax (40% in 2025), as well as capital gains tax on appreciated assets and ordinary income taxes on tax-qualified accounts, according to Matthew Chancey, Certified Financial Planner and author of 'Tax Alpha Solutions: Effective Tax Management Strategies For High-Net-Worth Investors.' In 2025, estate tax only applies to estates that exceed $13.99 million ($27.98 for married couples) in fair market value, per the IRS website. Beginning next year, the exemption increases to $15 million, according to the Tax Foundation. However, Chancey noted even if your estate isn't impacted by estate tax, your heirs could still have capital gains and income tax to deal with. GOBankingRates spoke with Chancey and other financial advisors about the strategies they use to help their clients minimize taxes on transferred wealth. Take Advantage of Step Up in Cost Basis 'One of the best parts of the tax code is called 'stepped up cost basis at death,' which means when our parents pass on and leave assets to us as heirs […] capital gain taxes can be avoided since the assets are now considered to have stepped up their cost basis to current FMV [fair market value], thus eliminating any capital gains,' Chancey said. You can use this strategy for a variety of appreciating assets, including taxable brokerage accounts and real estate. To visualize how this works, say the cost to acquire your home (its cost basis) was $200,000, and its fair market value is $400,000 now. If you gift the home to your child and they later sell it for $500,000, they'll pay capital gains tax on $300,000 ($500,000 less the $200,000 cost basis). If, on the other hand, they inherit the house and sell it for $500,000, they'll only pay capital gains tax on $100,000 — $500,000 less the stepped up basis of $400,000. Consider This: Reconsider Joint Ownership Some families like to jointly title property as a means of estate planning, according to Allison Harrison, founder and principal attorney of ALH Law Group, which specializes in estate planning for the LGBTQ+ community. However, this approach is problematic. 'The property is now subject to all the owner's creditors, and the survivor does not get a step-up in basis for capital gains purposes,' Harrison said. Take Out Permanent Life Insurance 'Life insurance is a great way to provide access to capital today, but grow it in a tax free way for the beneficiaries,' Harrison told GOBankingRates. A properly structured whole life policy, for example, is a permanent life insurance policy that can accrue interest on a tax-deferred basis and earn dividends tax-free, per Guardian. Under most circumstances, your beneficiaries won't have to pay income tax on insurance money that passes to them directly, in one lump sum, according to the IRS. Keep Gifts at $19,000 per Year or Less You pay gift tax of up to 40% if your gifts exceed the lifetime limit of $13.99 million (for 2025). For tax year 2025, gifts of up to $19,000 per year, per recipient, don't count toward the lifetime limit. Nor do they count toward your $13.99 million estate tax exemption, as they do if they exceed $19,000. The rules are the same for the generation-skipping tax on gifts to anyone at least 37.5 years younger than you, per TurboTax. 'Hugely important for people over the $15 million exemption level [for 2026]. That is potentially a double tax without planning,' warned Matthew Wiley of Wiley Law. You can work around the gift limits entirely by paying the recipient's tuition, health insurance or unreimbursed medical bills instead of gifting them cash or other assets. These payments are non-taxable as long as you pay them directly to qualified schools or to insurance companies or healthcare providers, according to Jackson Hewitt. Place Assets in an Irrevocable Trust A trust allows a third party, called a trustee, to hold assets you transfer into the trust for beneficiaries you designate. After you die, the trustee distributes the assets to the beneficiaries, according to Fidelity. An irrevocable trust can't be changed, but it can minimize estate tax and your heirs' income tax liability, while also shielding your estate from creditors and lawsuits. Wiley named the following irrevocable trusts as his favorite strategies for shielding wealth transfers against tax: Spousal lifetime access trust Irrevocable life insurance trust Domestic asset protection trust (available in select states) More From GOBankingRates 7 Luxury SUVs That Will Become Affordable in 2025 This article originally appeared on Top 5 Estate Planning Strategies To Avoid 'Great Wealth Transfer' Taxes Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you
Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you

CNBC

time4 days ago

  • Business
  • CNBC

Trump's ‘big beautiful bill' includes these key tax changes for 2025 — what they mean for you

It's been about two weeks since President Donald Trump's "big beautiful bill" became law, and financial advisors and tax professionals are still digesting what the sweeping legislation means for clients. Meanwhile, several changes are effective for 2025, which will impact tax returns filed in 2026. While the Trump administration has been promoting "working family tax cuts," the legislation's impact depends on your unique situation — and some updates are complex, experts say. "There are just so many moving pieces," said certified financial planner Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant. More from Personal Finance:Trump's 'big beautiful bill' caps student loans. What it means for youTax changes under Trump's 'big beautiful bill' — in one chartTrump's 'big beautiful bill' adds 45.5% 'SALT torpedo' for high earners Currently, many advisors are running projections — often for multiple years — to see how the new provisions could impact taxes. Without income planning, you could reduce, or even eliminate, various tax benefits for which you are otherwise eligible, experts say. When it comes to tax strategy, "you never want to do anything in a silo," Guarino said. Here are some of the key changes from Trump's legislation to know for 2025, and how the updates could affect your taxes. The Republicans' marquee law made permanent Trump's 2017 tax cuts — including lower tax brackets and higher standard deductions, among other provisions — which broadly reduced taxes for Americans. Without the extension, most filers could have seen higher taxes in 2026, according to a 2024 report from the Tax Foundation. However, the new law enhances Trump's 2017 cuts, with a few tax breaks that start in 2025: If you itemize tax breaks, there is also a temporary higher cap on the state and local tax deduction, or SALT. For 2025, the SALT deduction limit is $40,000, up from $10,000. The higher SALT benefit phases out, or reduces, for incomes between $500,000 to $600,000, which can create an artificially higher tax rate of 45.5% that some experts are calling a "SALT torpedo." This creates a "sweet spot" for the SALT deduction between $200,000 and $500,000 of earnings, based on other provisions in the bill, CPA John McCarthy wrote in a blog post this week. Trump's tax and spending bill also introduced some temporary tax breaks, which are effective for 2025. Some of these were floated during his 2024 presidential provisions include a $6,000 "bonus" deduction for certain older Americans ages 65 and over, which phases out over $75,000 for single filers or $150,000 for married couples filing jointly. There are also new deductions for tip income, overtime earnings and car loan interest, with varying eligibility requirements. This chart shows a breakdown of some of the key individual provisions that are effective for 2025 compared to previous law. During the pandemic, Congress boosted the premium tax credit through 2025, which made Marketplace health insurance more affordable. But Trump's legislation didn't extend the enhanced tax break, which could raise Affordable Care Act premiums for more than 22 million enrollees if no action is taken, according to KFF, a health policy organization. That could impact enrollees when choosing ACA health plans this fall, according to Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida. Starting in 2026, enrollees need to prepare for the ACA subsidy cliff, where enrollees lose the premium tax credit when income exceeds the earnings thresholds by even $1, he said. Currently, most ACA enrollees receive at least part of the premium tax credit. However, the subsidy cliff means enrollees lose the benefit once earnings exceed 400% of the federal poverty limit. For 2025, that threshold was $103,280 for a family of three, according to The Peterson Center on Healthcare, a nonprofit for healthcare policy, and KFF.

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