That is such an overgeneralization that I’m going to push back. What about the couple who has a paid-off house and no debt and pensions and lives easily on $50k to $60k a year and have a lot of money sitting in retirement accounts that they don’t touch? They can gift that money if they want.
Personal finance is personal. If someone doesn’t want to gift money to their kids, then don’t.
Do you think a couple living on 60k could afford to go on vacations, pay for car services if they couldn’t drive, what about in home care or cleaning services. Unless those people whom they gifted to are willing to come over to do all that extra work.
My mother is able to live by herself because I am able to take care of her. If I wasn’t around she would need to pay for in home care. Depending where you are it wou,d be 15-30/ hr.
Yes. Because we don’t know the extent of their resources. A 60k income doesn’t mean that’s all they have available.
My mom lives on less than her reported income. It is because she has quite a bit of resource that generates income.
Similarly, a couple is living on 50-60k may have reported income greater than that because of their resources. Our assets do not passively sit there, they do generate income that we have to pay taxes on.
I am waiting for someone to jump in to talk about setting a trust now. 
There is a big difference between income and assets, even though hopefully assets are generating income. And in retirement there is a bigger difference in income and taxable income.
Let’s suppose you are retired and living only on ss, pension, and non-retirement assets in the 60K range. However, you could still have 3 million in IRA and other retirement accounts, that are growing, tax free each year. They could be growing and generating unrealized income (like the person in this thread who mentioned a big stock portfolio). They could be growing and generating tax-free income right now. Since you are not being taxed on them you are still in a low tax bracket.
When you withdraw retirement assets you would then need to pay taxes, so do you want to pay taxes or do you want your kids/grandkids to pay taxes.
In my mother’s case, as I stated before, most of her assets are in non-retirement assets, therefore it would be better for us to inherit her assets after she passes away.
This is not a simple question to answer - what tax bracket are you in? what tax bracket are your kids/grandkids in? - and not now - rather at the time of the gift or inheritance.
Everybody’s situation is different, but we have plenty and therefore we are generous to our one child. She is well off financially, has a good paying job, low living expenses, and invests a large percentage of her earnings. So, we think why not pay for things for her now, instead of waiting. Let her assets continue to grow, and use some of ours instead.
Agree. The step up in basis on stocks is extremely valuable. Retirement accounts that are inherited are eventually taxed as ordinary income to the beneficiary when the money is taken out (just as they would be to the owner of the retirement accounts). Is the limit to wait ten years for the beneficiaries? I’m not current on that. Especially for adult children that may inherit during peak earning years, it can be a challenge.
Though these are not bad problems to have.
Don’t forget retirement accounts will need to take the required minimum distributions which will force some of those assets into income and be taxed. A $3 million IRA will result in a minimum distribution over 100,000 the first year.
I think (don’t hold me to this) that non-spousal beneficiaries only have to do RMDs if the owner has reached RMD age. Might be some other exceptions.
But, yes, if the decedent was already taking RMDs, the beneficiaries must as well. In addition to the entire account needing to be drained by the end of the 10th year.
That’s why inherited stocks are more valuable. You get the step up in basis and you can sell whenever you want. And if additional appreciation occurs before you decide to sell, the gains are only taxed at the capital gains rates. Much more flexibility for heirs than with inherited retirement accounts.
When my parents died, the time frame to deplete their retirement accounts was only five years.
My FIL may have a fair amount of money available for the beneficiaries, my husband and secondarily me. However, he is only 19 years older than us and in good health and we are in pretty good retirement shape on our own with some travel. I’m thinking my H should ask his father to change the beneficiaries on all the docs to reduce our % and add a fair % to go directly to his grandchildren so no tax hits them and maybe just leave them all the pre-taxed funds as we are in a position to pay taxes on traditional retirement. Is there any reason not to do this? My H seems hesitant to ask his dad to change anything because he doesn’t want to look like we are waiting for his passing. It’s just a logical thing to do as I know this was the time we could have used $ when we were in 30s and 40s. Why would it bother his father who adores his grandsons? Am I missing something?
When you refer to owner, are you referring to the non-spousal beneficiary or the deceased? I inherited an IRA from my dad and I had to take RMD right away.
Can you clarify this a bit? If he gives them his pre-tax money before he passes away he would need to pay taxes on the withdrawal. Your kids wouldn’t.
The deceased.
I’m assuming your dad was already taking RMDs because of his age. My understanding is that if the decedent is not yet of the age where those are required, beneficiaries don’t have to take those but still must deplete the account within ten years.
My parents were killed in their early 60s. At the time, the applicable law was their retirement accounts (only my dad had one), had to be depleted within five years of death. Not the current 10 years. We allowed that amount to continue growing tax deferred for those full five years because we could. He was still working and not drawing on his retirement accounts at the time of their deaths.
This would be my only hesitation with this.
I have a friend whose mother set things up this way. Instead of her estate being divided up 3 ways with 3 children, it was divided up 7 ways. 2 living children, one child deceased who had 2 children. 3 other grandchildren. Everyone got an equal portion. In a traditional division, estate would be divided up 3 ways with one third going to the child who had passed, her heirs.
Gosh, I hope that’s clear.
Great, except that one of the children, my friend went through a divorce, financial infidelity and bankruptcy. Moved in with her mother, mutually beneficial but took care of parent and did extensive work settling the estate.
Needs the money frankly. Spent years caretaking, now has 1/7 of the estate instead of 1/3. Her child is doing very well. My friend has health issues and unfortunately is not in a good place financially or physically.
I don’t expect to be divorced at this point. It can wipe out wealth as would a health incident for either my husband or I. But if anything would happen and I would need to benefit from an inheritance, I guess I would rather have the right to make that decision when the time comes. As unlikely as it seems at this point.
Oooops, I said that backwards, the post tax funds.
I do see your point, I just know how really nice it would have been to have received funds in our 30s and 40s when we were buying houses and raising kids and saving hard for retirement. I do think giving a hand up at that time is way better than when you are 70+ - we didn’t count on anything so we are really quite in good shape. We can only gift our kids $38k / year now, more in future years I’m sure but why not give them a lump to use/invest however they like. They are responsible and successful for their ages but gee wouldn’t it be nice to just have that extra breath of air when you are rushing through your 30s and 40s? Again, a % of the funds, not all of it. We’d be glad with 1/4 up to 1/2 going to the grandkids directly. And, I said it backwards in my statement - couldn’t he just leave them all his “post-tax” funds since we are in a better position to pay taxes than the kids are?
yes, step up is a wonderful tax savings today, but who knows if/when that might change. (fwiw: The Biden Admin proposed to eliminate the basis step up.)
That proposal was for step up basis over a million dollars
Your husband will also have the option to disclaim the inheritance when your FIL passes which would then pass to the contingent beneficiaries. If your FIL has named your children in the event your husband passes before them or if the intestacy laws direct it to them, it’s one way to skip your generation and the money would go to the grandchildren. Be very sure on the intestacy laws in your state and that there isn’t an alternative beneficiary obviously.