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Gregory S. DuPont March 24, 2021

When we look at the rising national debt and the long lasting societal and economic implications of COVID-19, it’s almost certain that taxes are going to go up in the near future, specifically estate taxes. This tax increase could cause problems for the inheritance you bestow upon your children and grandchildren, and your own retirement income as well. To protect yourself against future problems that estate taxation may bring, an integrated approach to estate planning and retirement is essential. Failing to address income tax for your retirement will cause a potential bigger problem for your inheritance. You can improve the tax picture for yourself, while ensuring that your children and grandchildren can live comfortably, by doing the following things.

  1. Know the history of estate taxation.

    Estate taxation has changed quite a bit in the last 30 years. Back in the early 1990s, estates in excess of $600,000 were the most vulnerable to taxes. This $600,000 number includes the value of the home, retirement accounts and life insurance policies. In today’s money, that’s $1.1 million, a significant amount of savings for the average consumer. Estates over $600,000 in the early 90s would get hit extremely hard with taxes, as in around 50%. Therefore, many families had to put some strategies in place to try to protect their assets from taxation. In the past few decades, the government has continually increased exemptions for estate taxation, but that could all roll back in the next 20 years. With the debt clock continuing to rise, and healthcare reform on the horizon, the government needs more revenue. The estate value where taxes start to become a big issue will likely decrease back towards a $600,000 value. With the current housing bubble we’re seeing, you could be almost all the way to that $600,000 mark with just the value of your home. There are ways to safely take value out of your taxable estate that will better benefit you and your family.

  2. Be proactive in your retirement planning.

    The 401(k) has ushered in an era of complacency regarding retirement planning. That must change. Money tied up in a 401(k) can leave you vulnerable to income taxes. The 401(k) has attracted many people due to employer matching, however, there are other retirement savings options that will lead to more return on investment. You’ll also be able to better protect that investment from taxation. We recommend a Roth IRA because you are able to withdraw your money tax-free later in exchange for paying tax on it now. Read more about retirement savings options here.

  3. Protect your inheritance through a basic gifting strategy.

    A basic gifting strategy describes how one gives a certain amount of money every year to one or multiple beneficiaries throughout their lifetime. For example, a married couple gives $10,000 to each of their children every year. Many people don’t do this for fear of not having enough money for retirement. If you can afford it, it’s a great strategy that will take money out of your taxable estate.

  4. Protect your inheritance through a life insurance policy.

    This is the best option for being able to pass any type of asset onto your children and grandchildren 10-20 years down the road without being taxed. Many life insurance policies allow you to have a tax-free death benefit and withdraw money tax-free during your lifetime. You can withdraw this money for any reason, including for retirement income or to give to your children as part of that basic gifting strategy we just mentioned. You can even use it as a college savings plan (read more about that here). It’s a much better option than a 401(k) in terms of the amount of money you can get out of it. Life insurance policies can triple the money that you put into them, while 401(k)s typically have a low employer-matched percent. Paying life insurance policy premiums takes money out of your estate as well, reducing taxes there.

Retirement planning, tax planning and estate planning go hand and hand. We can help you make smart financial decisions to ensure that you’ll live comfortably though your retirement, and your children and grandchildren will be taken care of.

If you have any questions about retirement planning, planning your inheritance, or just have financial and legal questions in general, don’t hesitate to give us a call at (614) 389-9711. You can also fill out the contact form on our website at