When Planning Your Legacy, Don’t Tip the IRS

You must pay taxes. But there’s no law that says you gotta leave a tip.
~Morgan Stanley advertisement

Nobody wants to leave the IRS a tip, but without proper planning, we often do that when our retirement ends (when we pass away). At BWFA, we find that many families pay unnecessary estate or income taxes because of inadequate multi-generational planning. Heirs often do not know what their loved ones intended for their estates, and the mistakes cost money.

Many clients come to us for financial planning because they have inherited a substantial amount of money. While we are creating a financial plan that incorporates the inheritance, often we find that these new clients are paying more in taxes than is necessary. They are leaving a tip for the IRS.

The most common gap that we find is not taking advantage of the “stretch” IRA. The stretch IRA allows heirs to withdraw funds from an IRA over their expected lifetimes, rather than over the expected lifetime of the original owner of the IRA. If it is not too late, we help clients take advantage of the stretch IRA—in effect stretching these payments over a much longer period of time. This strategy keeps more funds in the IRA, thus allowing assets to continue to grow tax-deferred.

While the stretch IRA is fairly easy to implement even after an inheritance is received, other estate planning situations must be addressed earlier in the process. For example, we recently completed a financial plan for a client whose father had made a trust as the designated beneficiary of his IRA. He intended for the trust to then make payments to his heirs. However, the beneficiary designation was not completed properly, and the IRA had to be liquidated before being transferred to the trust. Therefore, taxes had to be paid on the entire IRA. With proper planning, the IRA could have been transferred to the trust without paying taxes.

Bob Cassel’s tax article in this newsletter points out another situation in which sharing information is crucial to minimizing the tax bite. Bob writes about a tax deduction that is available to heirs of IRAs — but only if those heirs know that estate tax was paid due to the IRA. Obviously, multi-generational planning and coordination is necessary to take this deduction.

What is the common theme? We believe that the theme is communication across generations and throughout the family. That’s why BWFA advocates for what we call a Family Summit.

The Family Summit is a meeting that we facilitate with you and your family to discuss important issues of inheritance, estate planning, and expectations about the use of wealth. BWFA can participate in the meetings to any degree that you feel is appropriate. Our goal is to prepare your heirs for the eventual transfer of your wealth.

Typically, the Family Summit will include discussions about these items:

  • Taxes. Let’s make sure no tip is left to the IRS. If you and your heirs have different tax preparers, we make sure proper coordination occurs between the preparers related to estate and income taxes.
  • Estate Plan. We review your estate plan to make sure everything is current.
  • Wealth Transfer. We provide explanations to you and your heirs of how things work in the wealth transfer process.
  • Communication. We act as facilitators to determine if there are issues the family needs to discuss now to avoid conflict and confusion down the road.


Just as we feel that combining investment management, financial planning, and tax services will provide the best wealth management for an individual, we feel the Family Summit will provide the best multi-generational wealth management service for a family. We would like to meet and work with your heirs so we can continue to manage your wealth (and theirs) for the next generation!

If you would like more information about the Family Summit and BWFA’s estate planning services, please contact us.