Wealth preservation

[emergentmd]

For those who are at FIRE and have high assets/income, what are you doing to preserve wealth as you get close to the 12M estate tax cap/possible reduction in the future?

Trusts?
Roth Conversion?
Whole life insurance? Would like to avoid from past experience

Anything to be done other than standard business deductions to reduce taxes?

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[Mad Jack]

Family trusts are a great option, but I would really talk to a wealth advisor with experience in capital preservation

 

[doctalaughs]

Family trusts are a great option, but I would really talk to a wealth advisor with experience in capital preservation

Plus talk to an experienced estate/trust attorney. Most people should have one already.

If you have (or likely will soon) more than 5-6 million per spouse (even in real estate, second/third homes etc) , there are actions you can take this year but likely will never will again. They have to do with some of these specialized trusts being grandfathered if established in 2021 but not later (if the bill passes as proposed).

 

[Monocles]

For those who are at FIRE and have high assets/income, what are you doing to preserve wealth as you get close to the 12M estate tax cap/possible reduction in the future?

Trusts?
Roth Conversion?
Whole life insurance? Would like to avoid from past experience

Anything to be done other than standard business deductions to reduce taxes?

OP are you single? It should be 23.4M for couples so assuming you have heirs to pass it onto, that's a lot more than you initially thought to work with?

 

[doctalaughs]

OP are you single? It should be 23.4M for couples so assuming you have heirs to pass it onto, that's a lot more than you initially thought to work with?

It’s 23.4 now (which most physicians will not likely reach); however the proposal is to cut that to 6 per person immediately (so 12 M for couples)

12 M is a more likely number to hit in old age (particularly if 2 physician earners), especially because you include all assets including real estate. And even if the bill doesn’t pass for immediate reversion to 12, the 23.4 will sunset if not changed.

I personally don’t want to give 40% over the threshold to the government, particularly since this isn’t retroactive (you better bet most billionaires give way less with their army of tax lawyers and the bill has a grandfathering grantor trust “looophole” they can exploit- why should I pay 40% when the ultra rich are exempt, paying a small percentage like everything else). It would be one thing if they made it fair across the board without special exemptions.

 

[Monocles]

It’s 23.4 now (which most physicians will not likely reach); however the proposal is to cut that to 6 per person immediately (so 12 M for couples)

I did not know this! Will have to look into this proposal more.

 

[The White Coat Investor]

For those who are at FIRE and have high assets/income, what are you doing to preserve wealth as you get close to the 12M estate tax cap/possible reduction in the future?

Trusts?
Roth Conversion?
Whole life insurance? Would like to avoid from past experience

Anything to be done other than standard business deductions to reduce taxes?

Give it away. How much do you need? How much do you want to leave to your heirs? We just had this discussion and we don't think we need more than the proposed lower estate tax exemption and certainly don't want to leave more than that to our kids. So the rest goes to charity.

If you want to leave more to heirs, then you might consider giving it to them before the end of the year via an irrevocable trust. The proposal in Congress is going to halve the exemption.

If you're asking about asset protection techniques and not just estate planning, then there are other options like trusts, Roth conversions, and whole life insurance, but it is highly state dependent. Before you spend a lot on that you should actually calculate your risk of a significant above policy limits judgment. I just did that this week and found mine to be about 1/100,000 per year of practice.

 

[emergentmd]

It’s 23.4 now (which most physicians will not likely reach); however the proposal is to cut that to 6 per person immediately (so 12 M for couples)

12 M is a more likely number to hit in old age (particularly if 2 physician earners), especially because you include all assets including real estate. And even if the bill doesn’t pass for immediate reversion to 12, the 23.4 will sunset if not changed.

I personally don’t want to give 40% over the threshold to the government, particularly since this isn’t retroactive (you better bet most billionaires give way less with their army of tax lawyers and the bill has a grandfathering grantor trust “looophole” they can exploit- why should I pay 40% when the ultra rich are exempt, paying a small percentage like everything else). It would be one thing if they made it fair across the board without special exemptions.

The issue with not starting soon is the unknown. What if they lower the combined exemption from 23 to 8 M or less?

 

[Kuratz]

I agree with WCI. You’ve been blessed to be able to accumulate an enormous sum of money. You really just want to hoard it for heirs instead of sharing some of the excess with your community or donating to causes f your choosing? Who cares if the exemption goes from $23M to $12M, that’s at such an absurdly high level that anyone could be extremely generous and still set it up so their grandkids are wealthy.

This mentality is what causes people to support higher tax rates in the first place. Regardless of your intent it’s perceived as greed. And this is coming from a generally anti-tax conservative.

 

[Monocles]

I agree with WCI. You’ve been blessed to be able to accumulate an enormous sum of money. You really just want to hoard it for heirs instead of sharing some of the excess with your community or donating to causes f your choosing? Who cares if the exemption goes from $23M to $12M, that’s at such an absurdly high level that anyone could be extremely generous and still set it up so their grandkids are wealthy.

This mentality is what causes people to support higher tax rates in the first place. Regardless of your intent it’s perceived as greed. And this is coming from a generally anti-tax conservative.

This statement is a moralistic non-answer to OP's technical question.

If OP is worried about hitting the estate tax cap at the end of their life, then likely they've paid their fair share of taxes to support social institutions.

(And full disclosure, I say this as a pro-tax, pro-nanny state socialist!)

 

[doctalaughs]

I agree with WCI. You’ve been blessed to be able to accumulate an enormous sum of money. You really just want to hoard it for heirs instead of sharing some of the excess with your community or donating to causes f your choosing? Who cares if the exemption goes from $23M to $12M, that’s at such an absurdly high level that anyone could be extremely generous and still set it up so their grandkids are wealthy.

This mentality is what causes people to support higher tax rates in the first place. Regardless of your intent it’s perceived as greed. And this is coming from a generally anti-tax conservative.

You are free to give up 40% of your wealth to the government instead of your kids/grandkids at any level. If you hit 3 M not 6 M per person go ahead and give it away- that’s your prerogative.

When they close the loopholes for those who accumulate true “ultra wealth” (think private planes and islands) so they ALSO pay 40%, only THEN will I consider this transfer of wealth over some arbitrary number remotely justified.

 

[Dusn]

Once we’ve accepted that the govt can tax money when it changes hands in the form of income, we’ve accepted that the govt can tax money that changes hands in other ways (such as inheritance). It’s no more of a “double tax” than your income taxes are a “double tax” because the customer who you gave you the money was already taxed on that money.

What’s a “fair share” is subjective. There’s no easy answers there.

I definitely agree that system favors the ultra wealthy, as it always will. The ultrawealthy have much higher paid tax lawyers and lobbyists than the IRS does.

And if you want really advice on avoiding taxes - those tax lawyers are probably where you need to go… they charge a lot for their advice though though. The advice from studentdoctor.net isn’t going to be comparable.