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Sometimes, having too much money is a problem

Sometimes, having too much money is a problem

| February 25, 2020

It certainly is a strange thing to think about; however, recent prosperity has brought record net worth for many long-time investors.

Having more money than you need is a good problem, and, for the hard work that got you there, something for which to be thankful and appreciative.

However, increasingly, people are starting to listen to our comments around taxes and leaving the most to your loved ones as possible.

Therefore, yes, sometimes having too much money can be a problem. I'll go through a few things to consider, but talking with your advisor, your CPA, and your estate planning attorney might be in order if any of these ring true for you.

1. Right now, the federal estate tax is not a problem for most people. Unless you have over $10 million, it's not likely to impact you, at least right now.

However, it is highly likely that the limits will come down, perhaps to half the levels that they are now.

This is worth considering for long-range planning. We are living in one of the lowest tax regimes in history.

2. Minnesota estate taxes are currently set a $3 million per person, so a living couple, if planned right, could have a $6 million exemption passed along to their next-generation without any estate taxes.

This is why we are starting to see people cross over the threshold and wonder, what happens if I die with more than $3 million?

Again, this is what I like to call a “first-world problem.” Leaving behind money to your heirs, even if there are estate taxes, is usually a good thing.

However, some strategies can cut your estate down in size and reduce your, often “optional”, estate taxes. This can potentially save you hundreds of thousands, if not millions, of dollars, so please take a look at the math.

3. Finally, think about the next generation and their situation. Increasingly, with the new tax law that says that you have to spend down a retirement account that you inherit over 10 years, many children are going to be taking massive IRA distributions in peak earning years.

This is entirely optional.

If mom and dad, or one or the other, are in a lower tax bracket than the kids, it can make sense to do Roth conversions and other strategies.

There are a multitude of other ways to tackle this problem, and it's worth a look. It could be, what I like to say, $1000 an hour-type work to address these issues. If you are looking at paying money into the federal estate tax system or the Minnesota estate tax system, or if the increased rate of draw-down from the retirement accounts will push your kids up into the top bracket, these are activities that could make a huge impact on your family.

Thanks for taking a look!