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Planning for the Future

By October 18, 2023February 2nd, 2024One Wealth Perspectives

Today I sent my daughter off to her first day of toddler “school.” This new phase will be her first time leaving the house for the whole day on a regular basis. While I feel a sense of relief (to now be able to work from home without distraction), I can’t help but think about what the future might hold for our family at other big life stages. We live in an expensive area with access to excellent public schools and are living a lifestyle that means we may not be financially independent for quite some time. This might mean we’ll have to make sacrifices from time to time especially in comparison to others living in the same area. Despite lamenting about it constantly, I am actually at peace with it. At the end of the day, I just want my kids to live happy and peaceful lives and I believe I have and will continue to set them up as best I can to do so.

While it is impossible to predict the future, I do have confidence that I have found a career path that I can rely upon for consistent income (and savings) and I also don’t feel pressure that I’ll eventually have to “retire” since I can see myself staying engaged in this business well into my later years. From a financial planning perspective, this means I am projected to be able to save and build wealth over time simply by contributing to my 401k, building equity in our business at One Wealth, and paying my mortgage.
While I may not be financially independent any time soon, I often help my clients with families who have reached a level of financial independence think about ways to maximize the size of their estates that will ultimately be passed to their heirs. According to the IRS, you can leave a significant amount of assets to your heirs free of taxes. The Tax Cuts and Jobs Act of 2017 created a big opportunity for wealthy individuals and families by more than doubling the “lifetime estate tax exemption” amount. As of today, this allows an individual to transfer a total of~$12.92 million (or $24.8mm for married couples) tax free to their heirs over their lifetime. It is important to note this is a cumulative amount that is tallied by also tracking any annual gifts that are made above and beyond the current $17k annual gift tax exclusion amount ($34k for couples). So basically any gifts you make throughout your lifetime above and beyond the annual exemption amount in addition to the value of the estate at death will go towards the lifetime exemption amount. While this might not (currently) pertain to the large majority of individuals living in the US (including myself), it is important to be aware that the exemption amount is set to expire by the end of 2025 and revert back to ~$5mm (adjusted for inflation).

While there is no certainty around whether another law might get passed to extend the deadline, many people are choosing to implement planning strategies to take advantage of this current law by locking in their lifetime exemption amount. Some strategies may involve the creation and funding of certain types of irrevocable trusts, or other techniques, with the goal of moving assets out of one’s estate now and avoiding taxes on the future growth of those assets upon their passing down the road.

At the end of the day, there is no simple solution that works for everyone and we welcome further discussions on this topic with the advice and involvement of your estate and tax planning experts.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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