You’ve worked hard to build your legacy—and chances are, you want the people and causes you care about to benefit from it as fully as possible. But when it comes to passing wealth from one generation to the next, taxes can sometimes take a bigger bite than expected.

The good news? With proactive estate planning, you can often make thoughtful choices that help minimize future tax impact and ensure your assets are transferred according to your wishes.

Understanding How Taxes Affect Inherited Assets

When loved ones inherit assets, not all accounts are treated the same way in the eyes of the IRS. For example, traditional retirement accounts—such as IRAs or 401(k)s—are typically funded with pre-tax dollars. That means when your heirs withdraw those funds, they’ll generally owe income tax on the amounts they take out.

Current rules under the SECURE Act also require most non-spouse beneficiaries to fully withdraw inherited IRAs within 10 years, which can accelerate the tax impact if not managed carefully.

By contrast, certain non-retirement assets—like brokerage accounts or real estate—may receive a step-up in cost basis at the time of transfer. This means the taxable value is adjusted to its market value on the date of death, which can reduce potential capital gains if the asset is later sold. However, these rules can be nuanced and subject to change, so it’s important to stay informed.

Planning Strategies to Consider

Every family’s situation is unique, but there are several ways to help reduce the future tax burden on your heirs and make wealth transfer more efficient:

• Roth Conversions: Converting portions of pre-tax retirement assets to Roth accounts over time may help create a source of tax-free income for your beneficiaries down the road.
• Trusts: A trust can help ensure your assets are distributed according to your wishes and, in some cases, may help avoid probate or provide privacy for your estate.
• Charitable Giving: Incorporating charitable gifts into your estate plan can support the organizations that matter most to you while potentially reducing the taxable value of your estate.
• Lifetime Gifting: Making annual gifts within IRS limits can gradually reduce the size of your taxable estate—while letting you experience the joy of generosity during your lifetime.

Why Planning Early Matters

Estate and tax laws evolve, and your financial picture may shift over time. By reviewing your estate plan periodically—and coordinating with both your financial advisor and an estate attorney—you can help ensure your strategy remains aligned with your goals and current regulations.

A well-crafted estate plan isn’t just about finances—it’s about peace of mind. It’s about protecting the people you love, preserving what you’ve built, and passing on your values right alongside your wealth.

If you’d like to explore strategies tailored to your situation, we’re here to help you get started.