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Smart Investing for Your Estate Plan Thumbnail

Smart Investing for Your Estate Plan




Prudent investors know that a number of competing considerations need to be balanced when implementing a particular investment strategy and deciding whether a particular investment should be added or removed from the portfolio.   These considerations include the investor’s personal investment objectives, time horizon, risk tolerance and cash-flow requirements, to name a few.  Unfortunately, even the most astute investors often fail to consider the impact their investment choices can have on their estate planning.  Working with a wealth advisory team that includes a qualified estate planning attorney and a knowledgeable investment advisor can assure you avoid what can be a very costly oversight.

Investment Objectives

Perhaps the most fundamental issue that must be considered when making an investment decision is clarifying what you are trying to achieve by investing.  For example, are you focused on creating wealth that can be used to support your family, either now or in the future?  Or is the goal to build wealth to be passed on to loved ones or charity when you die?

Your investment objectives will not only have a major impact on the investment approach that is best suited for you, but also on how to provide for the ownership, management, and distribution of your investments in your estate plan.  

Account Ownership and Beneficiary Designations

The way investments are registered can have a big impact on the effectiveness of your estate plan.  For example, if an investment account is held jointly with the right of survivorship or in the name of a trust, probate can be avoided.  Investments held in accounts such as retirement plans and IRAs can also avoid probate by designating a beneficiary to receive those assets after the account owner’s death.  Moreover, a carefully prepared beneficiary designation can preserve tax-deferred growth (or tax-free growth, in the case of Roth accounts) for several years after the account owner dies.

In addition to probate avoidance, trust ownership allows investors to select an investment advisor to manage the investments they leave behind; to control the times and circumstances distributions are to be made to heirs; and to protect investments from an heir’s creditors in the event of a divorce, bankruptcy or lawsuit.

Managing Investments to Minimize Estate Taxes

If your net worth is sufficient to trigger estate taxes, there may be ways to structure the ownership of your investments so as to limit (and perhaps eliminate) the investments that are subject to estate taxation at death.  While a thorough discussion of this topic is beyond the scope of this article, the general idea is to structure and manage your investment portfolio to:

1.         Utilize strategies permitted by the Internal Revenue Code to shelter future growth in the value of the investment portfolio from estate taxes by shifting that growth to younger members of the investor’s family; and  

2.         To take maximum advantage of the estate tax deductions, exemptions and credits provided for by the Internal Revenue Code.

Valuation discounts, grantor retained annuity trusts, family holding companies, installment sales and charitable trusts are just a few examples of the planning techniques that can be used to legitimately minimize estate taxes.   You can learn more about these strategies at https://www.olglawoffice.com/

Managing Investments to Minimize Income Taxes

Managing capital gain taxes is an important component of a successful investment strategy. 

For one, it’s very important to consider the possibility of receiving a step up or step down in basis at death when deciding whether to sell securities with built-in capital gains or losses.  Under current law, property that is includable in a deceased person’s estate for estate tax purposes receives a basis adjustment for income tax purposes even if the decedent’s estate is not large enough to trigger an estate tax. 

For example, if a person’s estate includes property that at the time of death had an income tax basis of $100,000 and a fair market value of $500,000, the person who inherits that property would receive a “stepped-up” basis of $500,000.  As a result, if the recipient sells the property for $500,000, capital gain taxes are not triggered by the sale, because the difference between the $500,000 sales price and $500,000 tax basis is $0.[1]  

Capital gain issues also need to be considered when making lifetime gifts because property received by gift has a “carry-over” basis in the hands of the recipient.  This means the basis of property received by gift is equal to the income tax basis that the donor had in the property at the time of the gift. 

It is also important for investors to keep capital gain taxes in mind when making gifts to charities.  If a stock that has appreciated in value is gifted to charity, the donor will (subject to some limitations) be able to deduct the value of the stock at the time of the gift for income tax purposes, but does not have to recognize the built-in capital gain in income.


As the foregoing discussion illustrates, coordinating an investor’s investment activities with the investor’s estate planning can benefit both the investor as well as the beneficiaries of his or her estate. That’s one of the many advantages of The Milwaukee Company and O’Leary-Guth office, S.C.’s joint TeamWork program. Please feel free to contact me or Maureen O’Leary if you would like to learn about how we can work together to assist you.

[1]  An exception to the basis adjustment rules applies with regard to “income in respect of a decedent” (or “IRD”), which is earned income that has not yet been taxed (i.e., retirement accounts, IRAs, annuities, deferred compensation, etc.).   The tax basis of IRD property is not adjusted when the owner dies.