Six Ways The Rich Save Big On Estate Taxes

Six Ways The Rich Save Big On Estate Taxes

Hayley Cuccinello   Fri, June 2, 2023

Six ways the rich save big on estate taxes, from putting houses in trusts to guaranteeing inheritance for future generations

The wealthiest taxpayers have many tools at their disposal to pay less to Uncle Sam.  Some tactics, like donating to charity via trusts, might seem far-fetched but are perfectly legal.  Lawyers and bankers to the ultra-rich told Insider how these rarified techniques work.

hanks to tax cuts made during the Trump administration, Americans can give or hand down nearly $13 million in assets without paying federal estate tax. Only 0.2% of taxpayers have to worry about this tax, and they hire top-notch accountants and lawyers to pay as little as possible.

"This is a wealthy person's playground problem," Robert Strauss, partner at the law firm Weinstock Manion, told Insider.

Some of these tax avoidance techniques might be eyebrow-raising, yet they are perfectly legal. For instance, taxpayers can put homes and country homes in trusts that last decades, and any appreciation in the property's value doesn't count toward their taxable estate. Life insurance, probably the least sexy area of financial planning, can be used to save tens of millions of dollars in taxes if bought from issuers in the Cayman Islands and Bermuda.

In the next two years, estate planning will rev up into high gear as the end of the Trump tax cuts approaches. Currently, individuals and married couples can gift or bequeath $12.92 million and $25.84 million, respectively, before a 40% federal estate tax kicks in. But that exemption, barring further legislation, will be cut in half at the end of 2025.

Here are six little-known techniques that the richest taxpayers use to pay less to Uncle Sam:

Using trusts to give away homes and country houses

Qualified personal residence trusts, better known as QPRTs, effectively freeze the value of a real estate property for tax purposes. The homeowner puts the primary residence or vacation home in the trust and retains ownership for however many years they choose. When the trust ends, the property is transferred out of the taxable estate. The estate only has to pay gift tax on the value of the property when the trust was formed even if the home has appreciated by millions in value.

QPRTs have become more popular in the past year as interest rate hikes confer another tax benefit. It seems too good to be true, but there are a few strings attached.

Passing wealth to future generations with trusts that last up to 1,000 years

From the Wrigley family behind the titular chewing gum brand to Jeff Bezos' mother, an Amazon investor, some of America's wealthiest use generation-skipping trusts to avoid paying wealth transfer taxes and provide for future heirs.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/five-ways-rich-save-big-023512497.html

What Taxes Are Due on Gambling Winnings?

What Taxes Are Due on Gambling Winnings?

By ADAM BARONE   Updated February 23, 2023 

In 2021, about 76% of people visiting Las Vegas, Nevada took to the gambling tables.  Of all those who gamble, whether in Las Vegas, Atlantic City, New Jersey, or somewhere in between, not to mention on the web, a lucky few take home a lot of money.

Alas, if you win big while gambling, you do not get to keep every penny. Gambling winnings are fully taxable, and the Internal Revenue Service (IRS) has ways of ensuring that it gets its share. And it's not just casino gambling. Winnings from lotteries, horse races, off-track betting, sweepstakes, and game shows are taxable as well.

If it's any consolation, gambling losses are deductible if you itemize your deductions. But they're deductible only up to the amount that is offset by your winnings, and you must be able to prove it through records of your winnings and losses.

Before heading for the Las Vegas strip, make sure you understand the tax law as it relates to gambling to avoid a mess with the IRS down the road.

KEY TAKEAWAYS

If you win above a certain amount, the payer will deduct 24% from your winnings on the spot.

When you file your annual tax return, you'll report your winnings and your tax payments.

Depending on your tax bracket, you may then have to pay more or you may get a refund.

You can deduct gambling losses up to the amount of winnings that you report, so keep good records.

Gambling always involves a negative expected return—the house always has the advantage.

How Gambling Winnings Are Taxed

If you win a substantial amount of money in any legally operated game of chance, the payer of your winnings will deduct 24% of the total for taxes and will give you a copy of IRS Form W-2G to record the transaction.

What is "a substantial amount of money" in gambling? It depends on the game. It's $1,200 or more in winnings at slot machines or bingo games, but $1,500 for keno. It's $5,000 for sweepstakes, wagering pools, and lotteries.

In any case, 24% of the amount won will be deducted from your payout and sent directly to the IRS, with Form W-2G as the documentation. That 24% is an estimated tax. You might get some of it back or owe more.

 Taxes on winnings at games of skill like blackjack are not immediately withheld but you still are required to report the income and pay taxes on it.

Exceptions to the Rules

To continue reading, please go to the original article here:

https://www.investopedia.com/ask/answers/taxes-on-vegas-gambling-winnings/ 

Winning the Lottery: Dream or Nightmare?

Winning the Lottery: Dream or Nightmare?

Investopedia   Thu, June 1, 2023  By THE INVESTOPEDIA TEAM

 Reviewed by PAMELA RODRIGUEZ  Fact checked by PETE RATHBURN

A house. A vacation. A thousand dollars a day for life. Who wouldn't want to win a huge prize? Actually, a lot of people—once they realize these jackpots aren't free because most prize winnings are taxed as income by the Internal Revenue Service (IRS).  And what happens when you win the lottery? Taxes and financial missteps can quickly turn some windfalls into major burdens.

Before we lay out details of the lottery win process, here are some common prizes that perhaps we've all dreamed of winning and the often overlooked costs to keep them.

KEY TAKEAWAYS

You are taxed on anything you win, whether it's cash, an item, a trip, or a service.

Winnings are subject to federal and state income taxes.

Most tangible prizes like cars and homes are taxed at their fair market value.

Lottery winnings are taxed for the year in which they are collected, allowing winners who choose annuities to spread out the tax bill.

If you win a house, boat, or car, prepare to pay for their upkeep.

The Cost of Winning a House

After winning a home, you'll be responsible for paying the federal income tax based on the home's value. You may also be liable for state income tax, depending on your state of residence. As with any prize, the home's fair market value must be reported on Form 1040 as other income, and will be taxed at your marginal income tax rate.

Unless they already own a home that they plan to sell, many people couldn't afford to pay such a significant tax sum all at once, even with several months' notice. Furthermore, consider that homes given away as prizes are worth more than $500,000 and located in expensive areas.

Of course, if you could afford the tax bill, you'd be getting a home for the price of a generous down payment. But your costs wouldn't end there. On top of income taxes, you would also have higher recurring expenses such as property taxes, homeowner's insurance, and utility bills, not to mention the cost of general maintenance and upkeep. Despite striking it rich in the sweepstakes, you could end up house poor in the end.

 You must report any and all of your winnings to the IRS regardless of their value.

A Brand New Car

Just as with that prize of a home, you'll be responsible for federal and state income taxes on any cars that you win. These amounts will be based on the vehicle's fair market value and the combined federal and state bill might add up to about one-third of the car's value.

This may not be so bad if you win a $15,000 Ford Fiesta—you get a brand new car by paying $5,000 to the IRS. But if you win a sports car that retails for over $100,000, the tax bill would be proportionately higher. Since the cars that are given away as prizes are often luxury models, the new wheels could boost your reported taxable income quite a bit, maybe even into a new bracket taxed at a higher marginal rate.

Don't forget that you'll have to pay registration and licensing fees in order to get that car on the road. Then there are the ongoing costs associated with auto ownership. You can bet that costs for insurance premiums and maintenance are higher for a more expensive car. Oil changes on the cheapest Ferrari are pricey. And your shiny new 500-horsepower bullet probably doesn't get gas mileage that could rival your previous ride's.

A Vacation

To continue reading, please go to the original article here:

https://www.investopedia.com/managing-wealth/winning-jackpot-dream-nightmare/?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral

Wealth Transfers: 5 Unexpected Obstacles To Plan for Before It’s Too Late

Wealth Transfers: 5 Unexpected Obstacles To Plan for Before It’s Too Late

Heather Taylor   Wed, May 31, 2023

Are you planning to leave an inheritance or transfer your wealth? It’s important to avoid making mistakes that may create serious issues and complications for your family.

Lack of Preparation

One of the most common mistakes in transferring wealth is a lack of preparation.

Julie Virta, senior financial advisor at Vanguard, said many individuals push legacy planning off due to difficult emotions that might arise from envisioning your own death. However, continuing to push this planning off each day can deter the proper execution of your goals and wishes. This is especially true if you die before your plan is in place.

Virta recommends creating a legacy plan as soon as possible. A legacy plan should be established with a financial advisor, an estate planning lawyer and a tax expert.

Failure to Communicate

It is not enough to create a legacy plan. This plan must be communicated with all beneficiaries and relevant stakeholders. Communication sets expectations about the inheritance and clearly defines the roles of those involved, Virta said. If there isn’t any clear communication, it can easily cause confusion or even a rift or conflict among all involved in the wealth transfer.

To facilitate clear communication, Virta recommends setting up regular meetings with your partner, family and other beneficiaries. These meetings can help ensure all are aligned on your financial situation, long-term goals and preparations for the unexpected.

Not Looping in Beneficiaries

Some beneficiaries might not know much about the current state of your finances. If they are completely in the dark, Virta said, it can be good to make them privy to your existing accounts and to introduce them to your financial advisor and any other professionals you work alongside.

Remember: Those transferring wealth are allowed to share information at the level of detail where they’re most comfortable.

Not Considering Tax Implications

The value of an inheritance can significantly be impacted by taxes.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/wealth-transfers-5-unexpected-obstacles-161650951.html

Best Money Advice for Each Phase of Your Financial Life

Best Money Advice for Each Phase of Your Financial Life

Gabrielle Olya   Tue, May 30, 2023  GoBankingRates

‘Set for Life’ Author Scott Trench Shares His Best Money Advice for Each Phase of Your Financial Life

Scott Trench is the author of “Set for Life” and host of the “BiggerPockets Money” podcast. He is an experienced real estate investor who now serves as CEO of BiggerPockets, where he helps everyday people build wealth through real estate.

Recognized by GOBankingRates as a Top Money Expert, here he shares the four levers to building wealth, and how to know which one you should focus on.

What’s the one piece of money advice you wish everyone would follow?

I wish that everyone would remember that the big expenses — housing, transportation and food — are what matters when it comes to saving money, and that a home, in particular, is not an investment — it is an expense. The less you spend in these three categories, and especially on housing, the wealthier you will become.

What’s the most important thing to do to build wealth?

The most important thing to do to build wealth is to recognize that there are four key “levers” — spending less, earning more, investing and creating assets — businesses, intellectual property, etc. There’s a time and place for each lever — a time and place on your financial journey where each is the most important.

Single 20-somethings likely should concentrate most heavily on earning more. A middle-class family with less than a few hundred thousand dollars in wealth likely needs to tightly control expenses. A millionaire needs to focus on investing. And, the self-employed/entrepreneurs need to focus on creating.

These levers aren’t perpetual, but too many people attempt to focus on levers that don’t apply to them — [for example,] the person with $25,000 who spends hundreds of hours thinking about investing is wasting their time, because even great returns on a $25,000 investment aren’t meaningful compared to what can be saved or earned. Folks need to realistically self-assess and focus on what is meaningful to their position, with where they are at currently.

What’s your best tip for fighting the impacts of inflation?

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/set-life-author-scott-trench-110007524.html

I Lost $400k of My Retirement Savings in a Roth 401k

I Lost $400k of My Retirement Savings in a Roth 401k

Nicole Spector   Wed, May 31, 2023

I Lost $400k of My Retirement Savings in a Roth 401k — and If You’re Not Careful, You Could Too

Finance and retirement planning experts are usually quick to recommend that one set money aside in a Roth account. And it looks like the vast majority of Americans agree with them.

A new survey hosted by Derek Sall, a personal finance expert and the founder of LifeAndMyFinances, found that 92% of Americans think they should be investing in a Roth IRA. Sall wasn’t surprised by just how many people are of the belief that Roths are a financial must-have.

High-yield savings account vs. investing: Which is right for you?

“I estimated that 95% of people would say they should invest in a Roth (I wasn’t too far off!),” Sall told GOBankingRates. “But why? Why did I think the percentage would be so high? Simple. It’s what I’ve heard all my life — from every smart investor, from every influencer.

Even Dave Ramsey himself tells his millions of listeners to invest in a Roth. ‘It’s tax-free growth,’ they say. ‘You’ll have tax-free money in retirement,’ is another common one, [and] ‘taxes will likely go up in the future, so it’s smart to invest in a Roth now.'”

It all sounds so wise and the insight comes from wise people in the realm of personal finance. But in Sall’s opinion, this is horrible advice. Speaking to his own personal experience, he estimated a $400,000 loss of retirement income by having invested in a Roth IRA versus a traditional 401(k). What exactly did he discover?

The Tax Rate You Have Now Likely Won’t Be the Same in Retirement

The root of the problem, as Sall sees it, is that people assume that if they’re paying 22% tax on the money that’s going toward a Roth today, they’ll likely owe at least 22% tax on other income in retirement. But that’s perhaps not how it will pan out.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/lost-400k-retirement-savings-roth-174006044.html

These Are the Best Ways To Transfer Wealth

These Are the Best Ways To Transfer Wealth

I’m a Financial Advisor Who Works With Wealthy Families: These Are the Best Ways To Transfer Wealth

Andrew Lisa   Tue, May 30, 2023

It’s one thing to make money, but building generational wealth requires strategic planning for what happens with your assets after you’re gone. GOBankingRates spoke with financial and estate planning professionals with wealthy clientele and found there is no one-size-fits-all solution.

“No two individuals or families are identical, so every estate plan must be as unique as the people creating it,” said Seth Bier, a Los Angeles estate planning attorney and founder of Bier Law. “We focus on planning for what’s most important for each client, but our universal goals are planning for people to keep as much of their hard-earned money as possible, keep them out of court, and bring their loved one’s closer together during tough emotional situations.”

Here are the best ways to make that happen.

Keep More Money in the Family by Minimizing Costs and Taxes

Expensive estate transfers shrink inheritances.

Bier explained that the costliest part of the process is usually probate, an often-lengthy legal process that validates wills. In his home state of California, for example, the so-called 4-3-2-1 law requires estates to pay a succession of attorney fees that pile on as the estate becomes more valuable. It’s 4% on the first $100,00, 3% on the next $100,000, 2% on the next $800,000 — that’s 9% on the first $1 million alone — then 1% on the remainder up to $9 million.

Depending on Where You Live, You Might Pay Taxes Twice

After the judicial system gets its bite, it’s the Taxman’s turn.

“In 2023, we each have a federal estate tax exemption of $12.92 million,” said Bier. “That means 97% of Americans who pass away this year will not have to pay any federal estate tax. For the very fortunate 3% who would have to pay a federal estate tax, advanced planning can help minimize the 40% tax by removing assets from their estate and taking advantage of the unlimited marital deduction and generation-skipping tax exemption.”

And the IRS isn’t the only one in line.

“While many states do not have an estate tax like the federal system, the savvy will determine if their state has an estate tax and implement a plan to mitigate those taxes,” said Robert E. Kabacy, an estate planning lawyer with the firm Kell, Alterman & Runstein.

Do What the Wealthy Do: Put Your Trust in Trusts

So, how do the wealthy remove assets from their estate, avoid probate proceedings and capitalize on unlimited deductions?

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/m-financial-advisor-works-wealthy-133542196.html

What I Think Heirs and Beneficiaries Should Know

What I Think Heirs and Beneficiaries Should Know

Sean Bryant   Tue, May 30, 2023   GoBankingRates

I Went Through a Generational Wealth Transfer: Here is What I Think Heirs and Beneficiaries Should Know

It’s expected that over the next two decades, roughly $84 billion will be transferred from Boomers to Gen Xers and Millennials. This generational wealth transfer will be one of the biggest ever.

This leaves both heirs and beneficiaries with the important task of understanding how to approach this great transfer of wealth. How do you balance leaving enough for your loved ones with gifting to causes that are important to you? Within this article, we’ll dig into everything you need to know to prepare yourself for the great wealth transfer.

1. Transparency Is Important

Most families hate talking about money. Many will do whatever it takes to avoid the topic altogether. However, when it comes to planning for the future, parents and children need to have these tough discussions.

According to an Ameriprise Financial Money and Family study, only 19% of people are transparent with their families about finances. To have a successful transfer of wealth, it’s important to discuss what the family’s finances look like and what the plan is going to be.

Will money be distributed equally between beneficiaries? Will anything be transferred to charitable organizations? Are there any requests from parents on how the money should be used or invested? These are all questions that should be discussed ahead and time to avoid potential conflicts down the road.

2. Understand Tax Implications

Depending on your relationship and the state where you live, you could be on the hook for an inheritance tax. This is slightly different than an estate tax because the beneficiary is responsible. Currently, there are only six states that impose an inheritance tax and that will be reduced on January 1, 2025, when Iowa eliminates the tax.

It’s also important to understand the tax implications you might have if you inherit assets other than cash.

“If you receive property as part of your inheritance, such as a house or land, be aware of potential property taxes,” says Michael Ryan, former financial planner and founder of Michael Ryan Money. “The value of the property may increase your annual property tax obligations, and you might need to budget accordingly.”

The same is going to be true with other investments.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/went-generational-wealth-transfer-think-155345333.html

5 Best Money Tips From Top ‘Finfluencers’

5 Best Money Tips From Top ‘Finfluencers’

32% of Americans Trust Social Media for Financial Advice: 5 Best Money Tips From Top ‘Finfluencers’

Cynthia Measom   Mon, May 29,

According to a recent GOBankingRates survey of more than 1,000 Americans, 32% trust social media for money advice. If you’re not familiar with financial influencers — aka “finfluencers” — they are people who are typically not licensed investment advisors, but are able to influence their audience to take their financial advice or buy a product or service they promote on social media.

“Finfluencers” often find their influential power in the entertainment value they serve up to viewers along with their money tips. While there’s plenty of bad money advice on social media, there are also some solid suggestions coming from these TikTok and YouTube stars. Here are five best money tips from top “finfluencers” on social media — plus, additional insight from a certified financial planner.

Make Slow and Steady Progress Toward Your Emergency Fund

Taylor Price, also known as @pricelesstay on TikTok, is dedicated to helping Gen Z increase their financial IQ.

In a video posted to her YouTube channel, “8 Easy Steps To Get Your Emergency Fund Started,” Price says the amount needed for an emergency fund is not one-size-fits-all, but agrees that the “ideal” emergency fund is what many experts recommend — three to six months’ worth of expenses. If saving that amount seems overwhelming, Price recommends putting 10% of each paycheck aside to start building your emergency fund.

Divide Your Mortgage Payment in Half and Pay Biweekly

According to his LinkedIn profile, financial influencer Milan Singh has over 5 million combined followers across Instagram, TikTok and YouTube. In his Instagram video, “How To Save on Home,” Singh says you can make 26 biweekly payments on your mortgage instead of 12 monthly payments per year to pay off your mortgage early. The extra money will go toward the principal and save you thousands.

Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth, said, “Using biweekly, or even weekly, payments for your mortgage is a good idea as long as there is no additional charge for that service. It evens out your budget and will help pay off your mortgage quicker. I do biweekly payments on my personal mortgage.”

Add Your Teen to Your Credit Card as an Authorized User

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/32-americans-trust-social-media-140917213.html

Most Important Financial Skill For Achieving Financial Freedom

Author Discovers 'Most Important Financial Skill' For Achieving Financial Freedom

Kerry Hannon·Senior Columnist  Sun, May 28, 2023

Most of us have fits and starts on our financial journeys. But in the end, it comes down to “prosaic prudence,” or to put it simply, a humdrum approach, according to Jonathan Clements, a retirement expert and author of the new book "My Money Journey."

Clements, who spent two decades at The Wall Street Journal, where he was the personal finance columnist, is also the founder and editor of HumbleDollar website. In his latest book, he shares the financial lives of 30 people, ranging in age from 30 to mid-80s, including a high school teacher, a minister, and a software engineer.

Kerry Hannon·Senior Columnist  Sun, May 28, 2023

Most of us have fits and starts on our financial journeys. But in the end, it comes down to “prosaic prudence,” or to put it simply, a humdrum approach, according to Jonathan Clements, a retirement expert and author of the new book "My Money Journey."

Clements, who spent two decades at The Wall Street Journal, where he was the personal finance columnist, is also the founder and editor of HumbleDollar website. In his latest book, he shares the financial lives of 30 people, ranging in age from 30 to mid-80s, including a high school teacher, a minister, and a software engineer.

"When we write about our money journey, we inevitably describe our life journey," Clements said.

He offered some advice, and some insights, in a conversation with Yahoo Finance about everything from the role that parents play in shaping their children’s future financial lives to recovering after financial mistakes.

Edited excerpts:

What Inspired You To Write This Book?

One of the strengths of the website I run is that I have everyday Americans tell their financial stories. When they write for the site, they're writing about their personal experiences such as how they've dealt with retirement, how they've dealt with down markets, how they've dealt with financial emergencies. I invited the contributors to tell their full financial story. The message: If these everyday Americans and investors can reach financial freedom, so can you.

What Do You Mean By Financial Freedom?

It means money isn't a regular worry. It doesn't mean that you can buy anything you want, but it does mean that you have enough money to meet your wants and needs. If your financial desires are relatively modest, you could be financially free with a relatively small portfolio.

Only Five Of The Contributors Are Women. What Gives?

There's a less sinister answer. These are the readers who have followed me from the Wall Street Journal, and when I was there, it was mostly read by older white males. But I do think that there’s also a societal issue here, which is that for far too long, men have been in charge of financial issues in households, and women have taken the backseat. I think it's entirely unfortunate, and hopefully, generations to come will be much more balanced about it.

You are known for extolling frugality in your own financial advice, how does this play out in the book?

A thread that runs through is that these 30 people are disciplined. They've become very good at delaying gratification and living beneath their means. That is the most important financial skill. It's much more important than being able to pick good investments. It's much more important than being able to decipher Social Security or figure out the best credit card to use.

What Are Some Of The Other Major Themes In These Money Essays?

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/author-discovers-most-important-financial-skill-for-achieving-financial-freedom-115918521.html

My Journey of Becoming Minimalist 15 Years 15 Lessons

My Journey of Becoming Minimalist

Written By Joshua Becker   15 Years 15 Lessons

It’s almost unbelievable to me to think that this weekend marks 15 years since that Saturday morning in Vermont when I was first introduced to the word: minimalism.  In a world that continually exclaims “more is better,” the idea of intentionally owning less is countercultural—almost as if the idea must break through the noise. For me, it was a conversation with my neighbor. For others, it was a parent, a friend, or even this blog.

But regardless of how we came to be introduced to minimalism, the lifestyle begins to change us.

These last 15 years have been a journey of learning, understanding, and growth for me.

Whether you’ve been reading Becoming Minimalist all 15 years (thanks mom!) or just started today, I’d like to celebrate by sharing 15 lessons that minimalism has taught me over the last 15 years.

1. The power of less.

Our society often equates more with better, encouraging us to amass things in the pursuit of happiness. At the heart of every advertising message is the foundational message that this product will improve our lives.

Maybe the most profound lesson minimalism taught me was the power of less. Having fewer possessions has not only decluttered my physical space, it has allowed me to redirect my precious (and finite) resources toward things that matter.

2. Real wealth is intangible.

There is more than one definition of the word wealth. Merriam Webster offers three:

1. abundance of valuable material possessions or resources

2. abundant supply

3. all property that has a money value or an exchangeable value

When most people think of the word wealth, they define it (and usually desire it) in terms of financial or material resources.

But there are other things in the world that we should desire in “abundant supply:” relationships, love, faith, and impact all come to mind.

Very often, the pursuit of material wealth leaves those other pursuits lacking—rather than in abundant supply. Given the choice, I’ll prefer richness in relationships, faith, and love over dollars any day.

Minimalism helped me see that even clearer than before.

3. Contentment cannot be purchased.

To continue reading, please go to the original article here:

https://www.becomingminimalist.com/15-years-15-lessons-my-journey-of-becoming-minimalist/