Category: Estate Planning

Protecting Your Family from Wealth Transfer Mistakes

Posted on by elaina

Transferring wealth to the next generation is a significant milestone, yet many families make critical mistakes that can lead to confusion, frustration, and even unintended financial consequences. The most common wealth transfer mistakes stem from a lack of communication and planning. Without a clear strategy, families may face unnecessary tax burdens, legal complications, or strained relationships. 

Avoiding Common Wealth Transfer Mistakes 

One of the biggest wealth transfer mistakes is avoiding open discussions about inheritance plans. Many families assume that estate documents and an investment strategy alone are enough to ensure a smooth transition, but without clear communication, misunderstandings can arise. 

A 2018 study by Pershing, building on influential Stanford research from the early 2000s, found that most wealthy families believe poor investment decisions or estate planning mistakes are the primary reasons wealth dissipates over generations. However, the data tells a different story. Among families that failed to preserve both their wealth and unity, only 3% of failures were due to poor financial strategies. 

Instead, the leading cause—responsible for a staggering 60% of wealth and family breakdowns—was a lack of communication and trust between generations. Yet, surveys show that only 7% of wealthy families recognize negative family dynamics as a major risk. 

A proactive approach includes sitting down as a family to discuss key aspects such as: 

  • The amount and type of assets being transferred 
  • Tax implications and potential liabilities 
  • Each family member’s expectations and responsibilities 

These conversations help set realistic expectations, minimize conflicts, and ensure everyone is on the same page regarding the distribution of wealth. 

Planning for a Smooth Wealth Transfer 

Beyond communication, having a solid estate plan in place is crucial to avoiding wealth transfer mistakes. Estate planning should go beyond simply drafting a will—it should encompass trusts, tax strategies, and asset protection measures to ensure wealth is preserved and transferred efficiently. Working with experienced financial professionals can help mitigate risks and align your plan with your long-term goals. 

At BentOak Capital, we guide families through this complex process, ensuring that their wishes are honored while maximizing financial efficiency. By addressing concerns early and developing a well-structured plan, we help families build a legacy that lasts for generations. 

Start the Conversation Today 

If you’re ready to take the next step in protecting your family’s financial future, now is the time to start the conversation. Whether you’re planning your own estate or helping an older generation transition their wealth, thoughtful preparation is key. 

Have questions? We’re here to help. At BentOak Capital, we specialize in creating personalized plans that reflect your family’s unique vision and long-term financial goals. Let’s work together to ensure your wealth transfer plan honors your legacy and offers stability for future generations.

Top Risk Management Strategies for Families

Posted on by elaina

For high-net-worth families and trusts, risk management is about more than just protecting assets — it’s about securing financial stability for generations to come. Without a proactive strategy, even the most substantial wealth can be eroded by market volatility, tax inefficiencies, legal disputes, and family mismanagement. Here are the top risk management strategies to safeguard your family’s financial future.

1. Establish a Comprehensive Estate Plan

A well-structured estate plan ensures that wealth is preserved and transferred according to your wishes. Key components include:

  • Trusts: Protect assets from estate taxes, creditors, and potential family disputes while ensuring continuity in financial management.
  • Wills: Clearly define how assets will be distributed to avoid probate delays and legal battles.
  • Power of Attorney & Healthcare Directives: Ensure decisions are made by trusted individuals in the event of incapacity.
  • Regular Reviews: Estate plans should be updated periodically to reflect changes in tax laws, family dynamics, or financial goals.

2. Diversify Investment Portfolios

Market volatility can significantly impact family wealth, making diversification a key risk management strategy. Consider:

  • Investment Correlation: Spread investments across equities, bonds, real estate, and alternative assets to reduce exposure to any single market event.
  • Income Correlation: Explore opportunities to create additional income streams uncorrelated to your primary business.
  • Liquidity Management: Maintain a balance between liquid assets and long-term investments to provide flexibility during economic downturns.

3. Implement Tax-Efficient Strategies

High-net-worth families often face complex tax obligations, making strategic tax planning essential.

  • Gifting Strategies: Utilize annual gift tax exclusions and family trusts to transfer wealth efficiently.
  • Charitable Giving: Donor-advised funds and charitable trusts can reduce taxable income while supporting philanthropic goals.
  • Tax-Advantaged Accounts: Maximize contributions to retirement accounts, 529 plans, and other tax-deferred vehicles.
  • State & International Tax Considerations: For families with multi-state or global assets, careful structuring can minimize tax liabilities.

4. Leverage Insurance for Asset Protection

Insurance plays a vital role in protecting family wealth from unforeseen events: 

  • Life Insurance: Provides liquidity for estate taxes and income replacement.
  • Liability Insurance: High-net-worth individuals are often targets for lawsuits; umbrella policies can provide additional coverage.
  • Long-Term Care Insurance: Helps cover medical expenses in later years without depleting family assets.
  • Property & Casualty Insurance: Ensures real estate, collectibles, and valuables are properly protected.

5. Establish a Strong Family Governance Structure

Wealth mismanagement and family disputes are common risks in high-net-worth families. A clear governance framework can help avoid conflicts.

  • Family Constitution: Define values, financial goals, and succession plans to guide decision-making.
  • Regular Family Meetings: Promote transparency and alignment on financial matters.
  • Financial Education: Equip future generations with financial literacy to maintain and grow family wealth.
  • Trusted Advisors: Work with experienced financial planners, attorneys, and CPAs to guide wealth management strategies.

6. Protect Against Cybersecurity and Identity Theft

With growing digital threats, protecting financial and personal information is crucial. 

  • Cybersecurity Measures: Use strong passwords, multi-factor authentication, and encrypted communication.
  • Fraud Monitoring: Regularly review financial statements and set up alerts for unusual activity.
  • Family Training: Educate family members on phishing scams and online security best practices.
  • Digital Asset Planning: Include digital accounts and cryptocurrencies in estate plans. 

7. Stress Test Your Financial Plan

Conducting regular stress tests ensures your wealth management strategy is resilient under various economic and life scenarios. 

  • Scenario Planning: Evaluate how different market conditions, tax changes, or economic downturns could impact your wealth.
  • Liquidity Analysis: Ensure access to cash reserves for emergencies or opportunities.
  • Contingency Planning: Develop action plans for potential business, investment, or family-related risks. 

Risk Management Strategies to Assist Families

Effective risk management strategies for high-net-worth families requires a proactive and strategic approach. By integrating estate planning, investment diversification, tax efficiency, insurance protection, strong governance, cybersecurity, and financial stress testing, families can secure their wealth for future generations.

If you’re ready to develop a tailored risk management plan, BentOak Capital’s experienced advisors can help guide you through every step. Contact us today to start protecting your family’s financial future.

You Inherited an IRA. Now What? 

Posted on by elaina

Navigating legislative changes like the SECURE Act and SECURE Act 2.0 can be bewildering, especially with their impact on inherited IRA Required Minimum Distributions (RMDs). But fear not! This article provides clarity with dos and don’ts, along with definitions, to simplify the process of managing an inherited IRA.

Key Considerations for Inherited IRA Beneficiaries 

Do’s: 

  • Determine the type of beneficiary you are – different beneficiaries have different rules on drawing down the IRA. 
  • Withdraw funds within the required timeframe under the new laws. 
  • Maintain at least the same withdrawal rate as the original owner if they had reached the Required Beginning Date (RBD) before their passing. 
  • Avoid the 25% under-withdrawal penalty by following the correct withdrawal schedule. 
  • If you have reached your own RBD, consider using inherited IRA RMDs for qualified charitable distributions. 
  • Understand that a “death distribution” exempts you from the 10% early withdrawal penalty but remains subject to ordinary income tax. 

Don’ts: 

  • Ignore the account and fail to withdraw funds. 
  • Overlook tax reporting requirements—each withdrawal generates a 1099-R. 
  • Assume only traditional IRAs are affected—these rules apply to Roth, SEP, and other IRAs. 
  • Neglect to consult your tax advisor for the most tax-efficient withdrawal strategy. 
  • Miss the opportunity to reinvest distributed IRA assets—speak with your financial advisor for reinvestment options. 

Understanding Your Beneficiary Type 

Inheriting an IRA comes with responsibilities, and understanding the rules can help you avoid costly mistakes. Whether you’re required to withdraw funds over a set period or have the flexibility to stretch distributions, the key is knowing where you stand. Failing to follow the guidelines can result in unnecessary penalties, but with careful planning, you can make the most of your inheritance while staying compliant with tax laws. 

Types of Beneficiaries+ –  

  • Eligible Designated Beneficiaries (EDBs) – are spouses*, a minor child of original owner, someone who is disabled**, someone who is chronically ill** or someone who is less than 10 years younger than the original IRA owner.   
  • Non-Person – an entity (i.e. Charity, or Estate)  
  • Non-Eligible Designated Beneficiary (Non EDBs) – everyone else 

Now that we understand the classifications of IRA beneficiaries, let’s look at the rules on how they must distribute the funds. By adhering to these guidelines, beneficiaries can navigate the complexities effectively. 

Withdrawal Requirements by Beneficiary Type

inherited an IRA

*Spouse beneficiaries – spouses are the only beneficiaries who can choose if they want to keep the inherited IRA as an inherited IRA or combine it with their own IRA.  There are reasons for both options, but this decision must be made no later than the year after the IRA owner’s death.  This decision cannot longer be reversed. 

**Disabled and chronically ill beneficiaries must provide qualifying documentation to Custodian no later than 10/31 of the year following the IRA owner’s death. 

***RBD – Required Beginning Date.  This pertains to the age of the original account owner and if they had already began taking annual Required Minimum Distributions (RMDs) prior to their death.  In 2024, that is April 1st of the year after turning 73. 

+Trust Beneficiaries are not mentioned in this article, as depending the type of trust and how it was established will determine if that trust is an EDB, Non EDB or Non-Person beneficiary. 

By adhering to these guidelines, beneficiaries can navigate the complexities effectively. Remember to determine your beneficiary type, adhere to withdrawal schedules, report withdrawals accurately, and seek professional advice for tax-efficient strategies and reinvestment options. Whether you’re an Eligible Designated Beneficiary (EDB), a Non-Eligible Designated Beneficiary (Non-EDB), or a non-person entity, staying informed and proactive is key to managing inherited IRAs with confidence and compliance. 

For more insights on wealth management and financial planning, check out our resource library or connect with one of our advisors at BentOak Capital.

Plan Your Legacy: Three Estate Planning Questions You Can’t Ignore

Posted on by RFTB Dev

A former colleague of mine used to say that when you pass away, the only thing you take with you is the clothes you’re buried in. Everything else you own needs a plan. That statement would always lead to a conversation around what he called the Three Questions.

  1. What do you own? 
  2. How do you own it? 
  3. After you’re gone, what do you want to happen to it?

Let’s break those estate planning questions down, one by one.

What Do You Own? 

Most people have a general idea of what they own. The issue often lies in gathering all that information in one place. This step becomes critical if someone else—a non-involved spouse, power of attorney, executor, or child—needs access to it.

At BentOak Capital, we understand how important this step is. That’s why we created our Guide to Legacy Planning. There are also many “life organizers” available as books or digital tools. A simple written or typed document on your computer or in a secure location like a safe can work just as well. 

Be sure to include not only your financial accounts but also login credentials for email and social media accounts. For security, passwords are best managed through an online tool like LastPass or a similar service.

How Do You Own It?

Legally, there are two types of property: real and personal. How you own these assets is a cornerstone of estate planning.

In Texas, most of the time we deal with three forms of ownership: community property, joint tenancy, and sole ownership. Each has implications for what you can do with the asset while you’re alive, how it’s included in your estate at death, and how it can be transferred after you’re gone.

Personal property, such as furniture, jewelry, antiques, and family heirlooms, often sparks the most family disputes. There’s usually only one of mom’s favorite necklaces or grandpa’s pocket knife, and determining who gets what can create tension if plans aren’t clear. Taking the time to consider how you own these assets is essential for answering these estate planning questions.

After You’re Gone, What Do You Want to Happen to It? 

The importance of an intentional estate plan can’t be overstated. If you don’t have a will, Texas (or your state of residence) has intestacy laws that decide how your assets will be distributed. Without a plan, you’re leaving critical decisions—like the distribution of your possessions or the guardianship of minor children—to state government and the court system. If that’s your fallback, we recommend familiarizing yourself with those laws.

There are only three destinations for your estate: 

  1. The government, often in the form of estate taxes
  2. Your family or other heirs
  3. Charity

I’d like to think everyone wants to minimize the amount going to the government. Thanks to tax law changes in the late 2010s, estate tax thresholds are currently very high—over $13,000,000 per person. However, without intervention by Congress through the Tax Cuts and Jobs Act, this threshold will be reduced to approximately $7,000,000 in January 2026. 

Taxes aside, estate planning is about more than minimizing the government’s share. It’s about taking control of where your assets go. Want to ensure specific family members inherit certain items? You can specify that in your will. Want to leave a legacy for your church, alma mater, or favorite charity? You can make that happen, too.

It’s worth noting that some assets can’t pass through a will and instead transfer outside the probate system: 

  1. Retirement accounts like 401(k)s or IRAs (via beneficiary designation) 
  2. Life insurance proceeds (via beneficiary designation) 
  3. Bank or investment accounts with POD (payable on death) or TOD (transfer on death) designations 
  4. Assets held in trust (as specified in the trust document) 
  5. Business interests governed by a buy/sell agreement or partnership terms

Why These Estate Planning Questions Matter 

Answering these three estate planning questions is crucial to creating a clear and intentional legacy. So, how are you doing with that? If you have questions about your specific situation, we’re here to help. Contact us today to start planning for your future—and your legacy.

Should I Use a Donor Advised Fund When Giving to Public Charities?

Posted on by RFTB Dev

If you want to give money to your favorite charity, how should you do that? The obvious option is to write them a check (though these days, it’s more likely to be done electronically). Quick, easy, no strings attached. They get the money now to help keep their charitable mission going.

Exploring Ways to Give to Charities

Another way—less common but potentially more valuable—is to give the charity something else of value. For example:

You can donate any of these assets to a charity, which may keep them or sell them for cash.

No matter how or what you give1, you get an income tax deduction in the year you make the gift. However, in some circumstances, you may not actually be able to use the full tax deduction when you file your taxes.

For instance, if you don’t itemize deductions on your tax return, you won’t see any tax benefit for your charitable gift. In 2025, the standard deduction is $15,000 for a single filer and $30,000 for married couples filing jointly. So your charitable gifts, combined with state and local taxes, home mortgage interest, and certain medical expenses, must exceed these thresholds to count.

Understanding Donor Advised Funds

This is where a donor advised fund (DAF) can come into play. A DAF allows you to make a contribution to the fund and receive an immediate tax deduction, even if the money isn’t distributed to a charity right away. Think of it as your charitable savings account. You can contribute cash, stocks, or other assets to the fund, and your donation is invested until you decide which charity or charities to support.

So, should I use a donor advised fund? It depends on your goals and tax situation, but DAFs offer distinct advantages.

The Flexibility and Benefits of Donor Advised Funds

One of the major advantages of using a DAF is the flexibility it offers. You can contribute to your DAF in a high-income year, take the tax deduction, and then distribute the funds to your chosen charities over time. This allows you to maximize your tax benefits while still supporting your favorite causes.

Are you looking to simplify your charitable giving while gaining the ability to strategically support the causes you care about most? A DAF might be the right solution.

Additionally, a DAF gives you time to research and select charities that align with your philanthropic goals, rather than feeling rushed to make decisions by a deadline (such as December 31).

At BentOak Capital, we specialize in aligning your charitable giving with your overall financial goals, ensuring you make the most of opportunities like donor advised funds. With our expertise, we can help you strategically maximize both your tax benefits and the long-term impact of your generosity.

Donor Advised Funds as an Estate Planning Tool

One of the major advantages of using a DAF is the flexibility it provides. You can contribute to your DAF in a high-income year, take the tax deduction, and then distribute the funds to your chosen charities over time. This allows you to maximize your tax benefits while still supporting your favorite causes. 

There’s no greater joy than knowing your generosity can make a lasting difference. With a donor advised fund, you can ensure your charitable giving aligns with your values and creates a meaningful impact for years to come.

Should You Use a Donor Advised Fund? 

If you’re considering making a substantial charitable contribution and want to take advantage of immediate tax benefits, you might ask yourself: Should I use a donor advised fund?

A donor advised fund could be an excellent option. It provides flexibility, an opportunity to strategize your giving, and the ability to create a lasting impact. Just be sure to weigh the pros and cons carefully to ensure it’s the right fit for your charitable aspirations.

To learn how BentOak Capital can help you make the most of your charitable giving, contact us today.

 

 

1 There are of course rules for gifts of anything that’s not cash. For instance, some types of assets (the car, the house, the patents) require a qualified appraisal. Also, you have to fill out Form 8283.

Do I Need to Hire a CERTIFIED FINANCIAL PLANNER® Professional?

Posted on by RFTB Dev

Financial advice and planning are unique to each individual’s situation—and so is the decision to hire a CERTIFIED FINANCIAL PLANNER® professional. For instance, a business owner may need guidance structuring their first deal, while a doctor may seek tax-efficient retirement strategies. A recent retiree might need help creating a steady income from their nest egg. The needs vary because everyone’s goals and paths differ.  

Why Should I Hire a CERTIFIED FINANCIAL PLANNER® Professional? 

While financial planning is always personalized, there are key reasons why many individuals should consider hiring a CERTIFIED FINANCIAL PLANNER® professional. 

Reduce the Noise 

In today’s world, information is everywhere. But where do you start? Do you trust your neighbor, a news anchor, or a targeted ad on social media? While picking up trends may not require a discerning eye, high-quality financial guidance does. When you hire a CERTIFIED FINANCIAL PLANNER® professional, you reduce the noise and gain a reliable source for your questions or concerns. CERTIFIED FINANCIAL PLANNER® professionals are committed to offering personalized, sound advice. Plus, as fiduciaries, they are bound to act in your best interest. 

Compare this to flashy headlines designed to grab attention and clicks, often by presenting slanted facts. Following advice from unreliable sources can steer you off course, potentially derailing your financial goals. A CERTIFIED FINANCIAL PLANNER® professional can cut through the noise, breaking down facts and misconceptions to keep you focused on what matters most. 

Take Your Time Back  

Americans lead fast-paced lives. Whether you’re just entering the workforce, in the midst of your career, or preparing for retirement, chances are your schedule is full. Financial planning is a complex task that demands time and effort—resources many of us don’t have to spare. Seeking simplicity, many people turn to professionals in other areas of their lives. Just as you would consult a doctor for your health, you should consult a professional for your financial well-being. 

CERTIFIED FINANCIAL PLANNER® professionals dedicate their careers to helping people navigate the complexities of personal finance. By analyzing your plans and identifying potential weaknesses, they ensure your financial strategy aligns with your goals. Delegating this responsibility to a professional allows you to focus on what matters most to you. 

Navigate the Complex 

When was the last time you reviewed your company’s retirement plan benefits? Will they be enough when you retire? That depends. When you hire a CERTIFIED FINANCIAL PLANNER® professional, they can help you understand the ins and outs of your company’s retirement plan, ensuring you make the most of its features. Retirement plans vary widely, and a CFP® professional can guide you in leveraging your plan to fit your personal financial situation. 

Check out one of our other blog posts for more on when to hire a financial advisor. 

What Do I Need? 

When you hire a CERTIFIED FINANCIAL PLANNER® professional with the right expertise, you gain access to a wide range of services—investment management, tax planning, estate planning, and cash flow management, to name a few. However, financial planning is not one-size-fits-all. Some may need ongoing support, while others require only a one-time consultation to get started on the right path. Your personal circumstances will dictate what type of service you need, and a good advisor will help you figure out the best fit. 

Still unsure? Reach out to us. We’d be happy to help you determine whether you’re ready to hire a financial advisor.

5 Things to Consider When Reviewing Your Beneficiary Designations

Posted on by RFTB Dev

As life changes your goals may change. Beneficiary designations are powerful and should reflect your values. It is best to review these annually with your financial planner to ensure your assets are distributed as you wish and to reduce time, money, and stress.

Here are five things to consider when reviewing your beneficiary designations.

1. Revocable vs. Irrevocable Beneficiaries

Understanding the implications of each designation type is important. The most common type of beneficiary is a revocable beneficiary, meaning that the account owner has the flexibility to rename those listed as frequently as he/she wishes. Irrevocable beneficiaries are more permanent in nature; the account owner cannot rename without the current beneficiary consenting to this change. 

2. Relationship Dynamics and Primary/Secondary Beneficiaries

Life events such as birth, marriage, divorce, and even the loss of a loved one can all significantly alter your priorities. Recognizing the need to update beneficiaries based on changes in relationships or family structure ensures designations are aligned with current life circumstances.

Additionally, ensuring that both primary and secondary beneficiaries are listed is important.

Primary beneficiaries are designated to receive an asset first. Secondary, or contingent beneficiaries are designated to receive an asset if the primary beneficiary passes away before you do, or else disclaims (refuses to inherit) the asset. It is best to get detailed; list percentages designated to each beneficiary and how you would like the assets to be distributed.

3. Financial Position Changes

Your assets today are most likely not the same as they were five or ten years ago or what they will be in five or ten years from now. Major financial events such as inheritance, sale of a business, or job changes should prompt reassessment. 

4. Beneficiary Alignment with Will or Trust Intentions

Beneficiary designations on your accounts override intentions stated in your Will. A Will is subject to interpretation by probate court and in some extraordinarily contentious situations, can be contested by family members. By naming beneficiaries, you are utilizing a powerful tool, so it is important to ensure there is consistency between the two. You can also avoid probate by building a trust. Ensuring that both documents reflect your intentions helps avoid potential conflict and ensures your wishes are executed smoothly. 

5. Executor Communication with Beneficiaries 

Providing your executor with contact information for beneficiaries streamlines the asset distribution process after your passing. This proactive step reduces the burden on your executor and facilitates efficient communication during estate proceedings.  

Here at BentOak Capital, we understand that naming or un-naming beneficiaries can be difficult. We put emphasis on alignment with person values when reviewing your designations to promote clarity and confidence knowing that your wishes will be fulfilled.

Understanding the Step-Up in Tax Basis

Posted on by RFTB Dev

When it comes to estate planning and inheritance, one term you might have heard is the “step-up in tax basis.” While it may sound like financial jargon, understanding this concept can have significant benefits for your heirs. Let’s break it down and explore why it could be important to you. 

What is the Step-Up in Tax Basis? 

The step-up in tax basis is a provision in the U.S. tax code that adjusts the value of an inherited asset to its fair market value at the time of the original owner’s death. This adjustment can significantly reduce the capital gains taxes that heirs might owe if they decide to sell the inherited asset. 

How Does It Work? 

Let’s look at a simple example to illustrate how this works. Suppose your grandpa bought a house for $100,000 many years ago and, at the time of his passing, the house is worth $500,000. Under the step-up in basis rule, the house’s value is “stepped up” from the original purchase price of $100,000 to its current market value of $500,000 at the time of Grandpa’s death. 

This means that if you inherit the house and decide to sell it for $510,000, you will only owe taxes on the $10,000 gain (the difference between the stepped-up basis of $500,000 and the selling price of $510,000).  

If Grandpa gifted you the house during his lifetime, the step-up in basis would not apply and you would owe taxes on the $410,000 gain (the difference between the original $100,000 purchase price and the selling price of $510,000). 

Why is This Important? 

The step-up in tax basis can result in significant tax savings for your heirs. Here are some key benefits: 

  1. Reduced Capital Gains Taxes: By adjusting the asset’s tax basis to its current market value, the potential capital gains tax liability is minimized. This is particularly beneficial for assets that have appreciated significantly over time. 
  2. Easier Estate Planning: Understanding and utilizing the step-up in basis can simplify estate planning and help you make more informed decisions about transferring assets to your heirs. 
  3. Preservation of Wealth: By reducing the tax burden on inherited assets, more of your wealth can be preserved and passed on to future generations. 

Which Assets Qualify? 

The step-up in basis applies to a wide range of assets, including: 

  • Real Estate: Homes, rental properties, and land. 
  • Stocks and Bonds: Investments held in brokerage accounts. 
  • Business Interests: Ownership stakes in family businesses or other privately held companies. 
  • Personal Property: Valuable items such as art, jewelry, and collectibles. 

Exceptions and Considerations 

While the step-up in basis offers substantial tax benefits, there are some important considerations: 

  • Community Property States: In community property states, the surviving spouse typically receives a full step-up in basis for all community property assets. At the passing of the second spouse, the inheritors would receive a second step-up in basis 
  • Assets in Trusts: Certain types of trusts can impact how the step-up in basis is applied (or not applied), so it’s crucial to consult with a financial planner or estate attorney. 
  • Estate Tax Exemption: The step-up in basis is separate from the federal estate tax exemption, which allows a certain amount of an estate to be passed on tax-free. 

Final Thoughts

The step-up in tax basis is a powerful tool in estate planning, providing significant tax savings and helping to preserve wealth for your heirs. By understanding how it works and incorporating it into your estate planning strategy, you can ensure that your loved ones benefit from the assets you’ve worked hard to build. 

If you have any questions or need personalized advice on how to best utilize the step-up in basis in your estate planning, feel free to reach out. Smart financial planning today can secure a brighter future for your family.

Looking Ahead at the Tax Cuts and Jobs Act Sunset

Posted on by RFTB Dev

“If you fail to plan, you are planning to fail” – Benjamin Franklin 

The Tax Cuts and Jobs Act of 2017 (TCJA) will expire on December 31, 2025, unless Congress intervenes. Now, there’s a reason the phrase “it will take an act of congress” was colloquially created to describe getting a difficult situation taken care of. While it is possible that Congress could extend the TCJA Sunset, getting the two sides to come together on taxes in today’s political climate is not promising. We feel that it’s crucial to review your estate plan and tax situation now to be sure you are well prepared before January 1, 2026. 

Estate and Gift Tax Exemption 

The implementation of the Tax Cuts and Jobs Act doubled the lifetime federal estate and gift tax exemption, which is currently $13.61 million per person in 2024, or $27.22 for a married couple. This amount will drop to around $7 million per person on January 1, 2026. To maximize these current benefits, consider utilizing the increased exemptions before they expire. 

Possible Estate Planning Strategies to Consider:

  • Outright Gifts: Direct gifts to non-spousal and non-charitable recipients utilize your gift tax exemption ($18k in 2024) and can be an effective way to transfer wealth, especially to grandchildren by also applying your GSTT exemption. 
  • Insurance Trusts: Use your gift tax exemption to fund an irrevocable life insurance trust (ILIT), either by creating a new trust to purchase a policy or transferring an existing policy into an ILIT. 
  • Other Complex Strategies: Some UHNW clients may benefit from a mix of some other relatively complex but highly effective strategies. Please be sure to sit down with your wealth advisor and your estate planning attorney to determine what risks your estate may be exposed to starting in January 2026 and the best ways to plan around them. 

Income Tax Planning 

Federal income tax rates will increase after 2025, with the top rate rising from 37% to 39.6%. To mitigate this, consider strategies such as accelerating ordinary income or transferring income-producing assets to lower-earning family members. Note that capital gains tax rates will remain unchanged. If you would like a detailed look at the changes that are coming, take a look at this helpful Comparison Guide.

TCJA Sunset

Consider These Possible Tax Planning Opportunities:

  • Accelerate Ordinary Income: If you believe your tax rate will be higher starting in 2026 and you have control over all or part of your annual income, consider accelerating income into 2024 or 2025.  This may help you take advantage of the current lower rates before they potentially increase. W-2 income cannot be accelerated but you could, for example, choose to exercise vested stock options. 
  • Roth IRA Conversions: Converting traditional IRA assets to a Roth IRA now might be beneficial for your situation with rates being lower currently. A Roth IRA grows tax-free and is not subject to required minimum distributions (RMDs). Note that Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 
  • Traditional IRA Withdrawals: Consider accelerating withdrawals to take advantage of lower tax rates before 2026. This could be especially useful for individuals over age 59½ who do not want to convert to a Roth IRA but still want to benefit from current rates. 
  • Inherited IRA Distributions: If you inherited an IRA from someone other than your spouse anytime since January 1, 2020, that account is subject to the 10-year withdrawal window via the SECURE ACT. That means everything must be distributed from the account within 10 years. As such, you may consider taking some larger distributions before 2026 to take advantage of a lower tax rate right now. 

Itemized Tax Deductions 

The standard deduction will decrease in 2026, making itemized deductions more beneficial for many taxpayers. This change will affect state and local income tax (SALT) deductions, mortgage interest deductions, and charitable deductions. Additionally, the itemized deduction limitation (PEASE limitation) will return, affecting high-income taxpayers. 

Key Points:

  • State and Local Income Tax (SALT): The current $10,000 limit on SALT deductions will expire, allowing more individuals to itemize deductions. One thing that taxpayers may consider is taking advantage of is delaying the payment of the 4th quarter estimated SALT in 2025 to January 2026 to have the deduction for the 2026 tax year. 
  • Mortgage Interest Deduction: The deduction for mortgage interest will revert to interest on the first $1,000,000 of mortgage debt plus up to $100,000 of home equity debt. The current limit under TCJA is $750k. 
  • Charitable Deductions: Should the sunset occur, the amount of charitable contributions you can deduct may be reduced as well. The IRS doesn’t necessarily give you a full deduction towards your income taxes in the year you make a charitable gift – the type of charity you give to, the type of asset you give, and your taxable income for that year all play a part in determining how much of your charitable giving can actually be written off. Discuss this with your wealth advisor and tax professional to better understand the impact on your plan. 

Business Income 

The Tax Cuts and Jobs Act’s Qualified Business Income (QBI) Deduction, which allows a 20% deduction on passthrough business income, will expire at the end of 2025. This will significantly increase the tax burden on passthrough entities (Sole Proprietors, LLCs, S-Corporations, Partnerships) compared to C corporations, whose tax rate remains at 21%. Business owners should consider the impact this will have on their tax planning and current entity structure. 

Alternative Minimum Tax (AMT) 

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high-income individuals and corporations pay at least a minimum amount of tax, regardless of deductions or credits they might otherwise qualify for. It recalculates income tax by adding back certain tax preference items to taxable income, potentially resulting in a higher tax bill. If the Tax Cuts and Jobs Act sunsets, the AMT exemption and phaseout thresholds will revert to pre-TCJA levels. What this means is that many taxpayers who have never had to worry about AMT may all of a sudden have an AMT problem. This change, along with the re-expansion of AMT tax preference items like SALT deductions, presents opportunities for strategic income and deduction timing to manage tax liabilities. 

Don’t Sit Back and Watch the Tax Cuts and Jobs Act Sunset, Take Action Now

The anticipated sunset of the Tax Cuts and Jobs Act provisions necessitates proactive planning. If you are feeling overwhelmed right now, it’s okay. Know that these changes aren’t happening overnight, but be mindful that they are on the horizon and we do need to be prepared and plan for them. Don’t wait until the end of 2025. Download our TCJA Preparedness Checklist today about how your plan may or may not be affected by the TCJA Sunset and share it with us to discuss what strategies we can preemptively have ready for you as we go through the rest of 2024 and into 2025.

Heritage Planning for the Next Generation

Posted on by RFTB Dev

Here’s a story about parents. It can be told in a dozen different ways. A hundred. More. The ideas are the same, even if the particulars will vary:

You’re in the middle of your career, a third-generation family business owner. The company has been successful so far, having weathered and even thrived through the inevitable ups and downs of the last few decades. You still work with various family members. You have long-time employees who you think of as family. You recognize much of the success and longevity of the business came from the hard work of your parents and grandparents. You believe you are partially or mostly responsible for accelerating the future growth of the company. At least one of your kids has shown some interest in being involved in the business for the long run. You occasionally get offers – mostly unserious, though a few have made you stop and think – but in your heart of hearts, you know you probably won’t ever sell out. You want to see if this company can make it to four generations, or six. You wonder if that’s likely or even possible. You hope so.

That recognition of passing the torch – from previous generations, through you, to future generations – is important to you. You know what you learned from watching your elders, practicing with them, taking on progressively bigger tasks. You want to honor those who have come before you, especially since some of those people still have ownership stakes and still work with you on a daily basis. You have intentionally provided opportunities for your kids to learn, to practice, to take on progressively bigger tasks. A few of them have taken to it. Others haven’t. It was the same with you and your siblings.

There may be some hard feelings with some of your siblings. You are determined that your kids will still like each other when they are much older, will spend time together even if you’re not around. You wonder if that’s likely or even possible. You hope so.

Keep the business in the family. Keep the family together. Other families have been able to do both of those things, surely. It would be nice if there were a formula or a pattern to follow. Maybe a twelve step program for forward-looking parents who happen to be business owners, who want their family to thrive – and not be torn apart – after you are gone.

There Isn’t a Formula

There is no one right way, just as there is no one right way to run a business, or spend your money, or plan for retirement, or raise your children.

But throughout history, regardless of culture or time period, there have been those who have successfully maintained their unity as well as keeping the wealth within the family. This is not common; in fact it’s relatively rare. But studying those success stories shows that there are some common factors among the families that get it right over the long run. The four most important characteristics are

  1. Intention. The most successful multi-generational families are intentional about developing, encouraging, and passing on the values, history, and character of the generations that come before.
  2. Communication. Human beings have a massive desire to be heard and to be understood. Successful families foster open and effective communication between family members and between generations.
  3. Trust. In a successful family, all family members must have permission to assert themselves and to feel that they will be safe when doing so. All family members need to feel that what they can contribute will truly make a difference to the greater family.
  4. Purpose. Successful families have a well-defined common purpose – a forward-looking statement that articulates “this is who we are” and “this is what we do because of who we are”.

In short, the families that are most likely to successfully maintain their family unity and their family wealth are the ones that intentionally create a culture of communication and trust wrapped around a common family purpose.

Heritage Planning

Heritage planning is the name we use when referring to this intentional passing of values as well as valuables to the next generation. Heritage planning is preparing your heirs in advance to receive their inheritance. It’s critical here to define inheritance as encompassing your family stories, life lessons, community relationships, hopes and dreams. And also: money and assets, business interests, the farm or ranch.

The most successful families understand that imparting valuables without context, without also imparting important core values, has a high likelihood of ultimately causing breakdowns (or outright implosion) in future family generations. But a vibrant family culture of intergenerational communication, high trust, and a common purpose significantly increases the chance that heirs who receive money, assets, business interests, or the family farm or ranch will retain more positive family traits. Traits such as spending time together, having strong emotional ties, and exhibiting a willingness to work through problems.

The Characteristics of a Successful Multigenerational Family are not Mysterious

They can be applied in any family, though some families may have to do some significant work to achieve their desired outcomes. Ultimately, only you and your family can decide if it is worth it.

Many people have not thought about the correlation between money and values and inheritance and a shared family purpose and why knowing the family history can be so valuable. Our goal is to help you uncover what gaps your family faces, moving from where you are now to where you want your family be in the future. We want to help you define those gaps in plain English, and for you to see the value in your own life of filling those gaps. For some families, we can work with you to create a completely customized intentional process that is driven by your family towards your desired outcomes. For other families, our goal is to provide resources and encouragement that will empower you and your family to take an active role in bridging your gaps.

Heritage planning works best by interweaving itself with a proactive financial plan and a thoughtful, future-oriented estate plan. This is what BentOak Capital strives to do for you. We want to be a team that advocates for you and for your family, so that you can focus on what matters most.