We are 64 and 66, married 40-plus years and live in Maryland. We are healthy, blessed, and have no debt. We worked hard to maximize our retirement savings, and we now have $3 million, and $2.5 million in stocks, cash and CDs outside of retirement. We have not applied for Social Security, and have an annual income of $250,000 annually for the next 15 years from the sale of a business. Our home is in a family trust, paid for and valued at $650,000.
We have two adult kids married with stable jobs, and one grandchild. We do not have long-term care insurance, and plan to self-insure if needed. We are generous to our church and local non-profits, and enjoy regular travel and hobbies. We do not spend extravagantly on stuff. Both of us will be retired in a few months, and we will be updating our estate plan, which currently is pretty simple with medical and durable power of attorney.
What tips do you have to minimize taxes, maximize our holdings and leave a healthy nest egg for future generations? What should I be asking a financial-planning attorney? What types of trusts should be in place?
Firstly, I’d like to apologize for the headline. But you certainly are the couple who has everything or, put another way, went out and got it. You have savings, a home that is paid off, you like yourselves, and you are ready for the next chapter of your life. Nice work, if you can get it. The Moneyist should be asking you for advice! Congratulations, and many happy returns. Your story will inspire some and, let’s face it, may irritate others. But you can’t please everyone.
There comes a time when you need to bite the bullet, and ask an adviser. Open-ended questions are as a good place to start with an adviser (“how can you help me?”) as they are a bad place to start at a dinner party (“so tell me about yourself?”). Do they know everything? No. Will they give you some guidance? Probably. Will they be secretly grinding their fingernails into their notepad as they find ways to advise you? Perhaps. They’re only human, after all.
Everyone can use tips, and the more money you have saved, the more tax advice you will need. Cary Carbonaro, senior vice president and director of women and wealth at Advisors Capital Management in Winter Garden, Fla. says you should make sure all cash, certificates of deposit and dividend-paying stocks are paying enough to justify not using municipal bonds. “Defer Social Security and retirement account distributions as long as you can,” she adds.
With a lot of money comes a lot of responsibility. Review your beneficiaries, and perhaps set up tax-advantaged college plans for your grandchildren. Analyze your individual holdings annually for realizing capital losses where possible, to carry forward tax losses. “You may use those tax losses towards your installment sale income, assuming its tax treatment is long-term capital gains,” she adds. “Limit portfolio distributions to 3% to 4% of fair market value, annually.”
“Spend time with your friends and family. You can buy yourself many things, but the one thing that a $6 million retirement will give you is freedom to choose where you want to be and with whom. ”
Probate is the financial equivalent of hanging out your washing to dry for all the neighbors to see. So consider transfer-on-death instructions, or a revocable trust, Carbonaro adds. “If you wish to have your home avoid probate, consider re-registering your home to a revocable trust,” she says. Alternatively, a qualified personal residence trust (QPRT) is a specific type of irrevocable trust that will allow you to remove your home from your estate for tax purposes.
Tim Speiss, partner at Eisner Advisory Group, suggests you think about annual gifts for your family to avoid paying more taxes when you die. For 2023, the gift and estate tax exemption are $12.92 million per single person or $25.84 million per married couple. (As my MarketWatch retirement reporter Beth Pinsker points out, those rates will sunset at the end of 2025 without congressional action, and revert to levels prior to the 2018 Tax Cuts and Jobs Act.)
“There is no mention of life insurance in place,” Speiss says. “Contemplate obtaining life insurance, and utilizing a trust to own the policy. The trust will help safeguard the proceeds, and if structured properly, keep the proceeds outside of your estate, while allowing the trust to invest in income-producing investments, and for growth. Lifetime gifts that don’t qualify for the annual exclusion will reduce the amount of gift and estate tax exemption.”
Of course, we can’t complete your estate planning on these pages. That’s why you should consult an estate-planning attorney. Each state has a different set of rules, so Carbonaro further suggests asking your estate-planning attorney if there are any specific estate-planning vehicles unique to Maryland law. You’ve put in the time, patience and hard work. This is the fun part: enjoy your retirement and plan ahead to reduce your tax bill after you’ve gone.
Most importantly, you should enjoy the years ahead. Play tennis or bridge — or whatever floats your boat — and visit those places on your bucket list — Japan? Australia? Easter Island? Ireland? (I’m putting in an honorable mention for the Moneyist’s birthplace.) Spend time with your friends and family. You can buy yourself many things, but the one thing that a $6 million retirement will give you is freedom to choose where you want to be and with whom.
And that — whether you have $6 million or less — is the biggest luxury of all.
Readers write to me with all sorts of dilemmas.
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The Moneyist regrets he cannot reply to questions individually.
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