Liz Weston Warns $5 Million Inheritance Plan May Fail to Cut Taxes
Updated
Updated · Los Angeles Times · Jul 5
Liz Weston Warns $5 Million Inheritance Plan May Fail to Cut Taxes
1 articles · Updated · Los Angeles Times · Jul 5
Summary
$1 million gifts to each grandchild may not deliver the hoped-for tax break because the kiddie tax can apply unearned income above $2,700 at the parents’ rate.
Retirement accounts inherited by grandchildren also face tighter payout rules: if the original owner is not a parent, the 10-year withdrawal clock starts immediately rather than after age 21.
$3 million held in retirement funds creates a separate estate-planning problem because those assets do not receive a step-up in basis at death, unlike taxable accounts.
Weston’s cited experts said families seeking to skip a generation should weigh spending down retirement accounts, converting some assets to Roth IRAs, or using trusts that delay access beyond age 18.
Any such move needs estate-planning and tax advice because trusts carry complex rules and high tax rates, while Roth conversions work best if the grandparents are in a lower bracket.