Learn how to legally stash assets from Uncle Sam

| Feb 18, 2020 | Firm News

If you have avoided retirement planning because you don’t want your assets to be taxed, you should know that there is a way to protect your assets and resources legally from the clutches of the government. These tips could also help you assist your elderly parents or grandparents from having their estates heavily taxed when they pass on.

Read on to learn how you can protect vital assets from being reduced by taxes.

Give gifts to beneficiaries during your lifetime

Those with large estates can minimize the taxes on their estates after death by taking advantage of the gifting limits to their beneficiaries. If your parents will have a large estate, they can gift money to potential beneficiaries while they’re alive. Check with your Cocoa estate planning attorney or tax adviser to learn the annual or lifetime limits for these behests.

Fund trusts for beneficiaries

Trusts are a great way to preserve the assets you have accrued for the next generation — and beyond. Trusts are not subject to the probate process after death.

Trusts do have to be managed by a responsible trustee. This person will be responsible for handling disbursements to beneficiaries. For this and other reasons, it is often preferable to choose an unrelated individual who is not a co-beneficiary as the trustee.

Set up an IRA-BDA (Beneficiary Distribution Account)

If your relative passes away and you are the executor of their estate, don’t be too quick to close their Individual Retirement Account (IRA). It may be possible to allow the funds to accrue for decades if you set up an IRA-BDA.

Here’s how it can work. You can receive a yearly distribution while allowing the money to grow with the taxes being deferred. Taxes can be minimized with the strategic management of your accounts. Investments sold during a person’s lifetime are taxed at the individual tax rate. But upon the person’s death, their beneficiaries can choose to either let the IRA continue to grow or take a lump sum distribution.

Consider selling off stocks with losses

While you are alive, you can sell off any stocks with a diminished value and deduct the loss from the purchase price on your tax return. Alternatively, if your heirs sell losing stocks after your death, they can only use the stock’s present value.

Hold onto stocks that are rising

The same stepped-up basis rule mentioned above can also save on taxes after the purchaser’s death. A stock bought at $100 that is now worth $1,000 has no tax due on the gains when it is sold after the purchaser’s death.

Consider claiming elderly parents as qualified dependents

While obviously this will not work in all circumstances, this strategy can definitely benefit you at tax time if you cover 51% or more of your parents’ support. You can figure this out by calculating the fair market value of their food and other room and board costs when they live with you.

Inform disabled and elderly relatives about the disabled tax credit

Some people may claim a credit that offsets their income tax liability if they are totally disabled or reached the age of 65 before the tax year ended. They also can not earn more than $17,500 per year or $25,000 for couples.

A tax advisier or estate planner can offer additional legal strategies to protect your assets, both in this lifetime and after you pass on.