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Should you leave your kids equal amounts in your estate plan? Equal doesn't always equal the same.
Should you leave your kids equal amounts in your estate plan? Maybe. But leaving your kids equal dollar amounts doesn't always mean they'll receive equal amounts after taxes. And sometimes, a little planning can help your family keep more of what you've worked so hard to build. Here's an example. Let's say you have $1M, split between a traditional IRA and a Roth IRA, and two adult children. One is a high-earning executive in the 35% tax bracket. The other is a teacher in the 22% bracket. And the goal is to leave each of them the same amount. $500,000. If you leave each child $500,000 in an even split from the traditional IRA and the Roth, the withdrawals from the Traditional IRA are generally taxable as ordinary income. And your higher-earning child could end up paying significantly more in taxes. So while they may have started with what seemed like equal amounts, they each ended up with very different amounts. If, instead, you left more of the traditional IRA to the child in the lower tax bracket, and more of your Roth IRA or taxable investment accounts to the higher earner, you could potentially reduce the family's overall tax bill without changing how much you actually intended each child to receive. Of course, beneficiary designations, withdrawal rules, tax brackets, and family circumstances all matter. And any changes should be coordinated with your estate plan. If you haven't reviewed which accounts you're leaving to which beneficiaries, it may be worth another look. If you need help figuring out how to pass along your assets more tax-efficiently, we're happy to help. Link in bio.
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