Death and Taxes: Why They’re Important in Financial Planning

Death and Taxes: Why They’re Important in Financial Planning

Although Tax Day 2020 has been extended from April 15 to July 15 because of the Coronavirus pandemic, taxes will still be due this year, and soon. While considering your taxes, I encourage you to think through the role of taxes in your estate plan, something people seldom do.

Many Sonoma County wealth advisors focus solely on income and investments, but at Montgomery Taylor Wealth Management, tax and estate planning are a big part the financial planning puzzle.

Why are these two important elements often overlooked aspects of a financial plan? Well, death, it’s safe to say, is no one’s favorite subject, especially when it comes to discussing your own. But it’s crucial in preserving your legacy and making sure your assets go to your beneficiaries instead of the IRS.

The Importance of Estate Planning

Estate planning often takes a very back seat to more immediate issues, such as cash management, retirement planning or educational savings for children and grandchildren. But it shouldn’t.

Unfortunately, many people assume that their spouse or children will automatically receive the assets intended for them and that the IRS won’t touch these inheritances. Therefore, taking an active role in the planning isn’t necessary. But that’s not the case. We hear sad stories all the time.

Without a valid will, there’s no guarantee that your family and other beneficiaries will receive the assets you want them to. Dying intestate (without a will) means that the laws of the state you reside in will take over. It can also mean that any disposition of assets will take years, as the probate process can be complicated and likely presided over by a judge. Your beneficiaries can be without any of your assets during that time. Can they manage during a period likely to last a year or more?

Another issue we see is if you want assets left to family members outside of your immediate family, friends or charitable organizations, there may be no chance of that happening if you don’t specify your wishes in a will.


Have questions about your taxes and how they relate to your finances? Contact Montgomery Taylor Wealth Management to see how we can help.


Plan for the Tax Consequences of Your Estate

Once you have a will, you can then create a financial plan for the tax consequences of your estate. Estates can be subject to several different forms of taxation, some of which will fall upon your heirs to pay. Tax and estate strategies are essential if you are to minimize taxation and plan prudently.

Here’s a rundown of potential taxes related to your estate, and current tax strategies for avoiding them.

Estate Taxes

Estate taxes are taxes on the estate you bequeath, levied on and paid by your estate.

Currently, you do not have to pay federal estate taxes unless your estate is worth $11.8 million. (The total is comprised of all assets, including retirement accounts, investment accounts, real estate, cash and multiple other assets.) The figure is indexed to rise every year; the threshold in 2019 was $11.4 million.

While California doesn’t enforce estate taxes at the state level, many states do, and your assets could be subject to them if you are a resident of the state when you die. Thresholds for taxation vary state to state. Estate and tax laws change frequently.

There are also other taxes that you – and your estate – could be subject to.

Inheritance Taxes

Inheritance taxes, unlike estate taxes, are paid by the people who have inherited from your estate rather than by the estate itself.

The federal government doesn’t levy any inheritance taxes, but certain states do. California is not one of them, however, you could be subject to other taxes. The tax treatment of inheritances varies by state. In most cases, an inheritance doesn’t count as income. Your spouse and children may be exempt from these taxes, but that varies by state as well.

Gift Taxes

If you gift assets, such as cash, stocks, real estate, other property or jewelry to a person who is not your spouse before you pass away, you can be subject to a gift tax on the amount, provided recipients don’t recompense you at fair market value and you don’t expect ever to receive the property back from them.

Available Tax Strategies

Fortunately, tax strategies are available to lower any estate, inheritance or gift tax you may owe. And these should be a part of your overall financial plan.

A common strategy is giving away money to reduce the size of your estate before you pass away. Americans are allowed to give as much as $15,000 to as many individuals as they wish in 2020.

You can also make charitable contributions for any amount without taxation. Your spouse can also be given any amount without triggering excess taxation.

In the realm of death and taxes, the rules are constantly changing. The most prudent way to reduce your tax liabilities while providing for your heirs is to work with a qualified financial advisor who specializes in tax planning and can advise you on the best strategies for your specific situation. A financial advisor should also keep you current on any changes in the tax code that affects your assets and your estate.

At Montgomery Taylor Wealth Management, our Sonoma County wealth advisors make tax planning a priority.

We can prepare taxes for:

  • Individuals
  • Small to medium-sized businesses
  • Partnerships
  • Corporations
  • Sole proprietors
  • Trusts and estates

We can also provide additional assistance for businesses, including:

  • Bookkeeping overview
  • Payroll tax reporting
  • Sales and use tax
  • Tax and credit incentives
  • Multi-state planning

The current health pandemic has raised many concerns for people regarding their health, their finances and their future. If you have any questions about your taxes, your estate or your retirement plan, contact the Sonoma County wealth advisors at Montgomery Taylor Wealth Management. We’re here to help.

Montgomery Taylor Realistic Financial Planning