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Until you may have been residing underneath a rock, you might be properly conscious of the rising motion on this nation to “tax the wealthy” — a slogan representative Alexandria Ocasio-Cortez had prominently displayed at this year’s Met Gala in bold red letters on her evening gown. As well as, the Biden Administration seems to be studying straight out of Bernie Sanders’s playbook and taking direct goal on the rich in latest social media campaigns, declaring “[m]illionaires and billionaires are paying a lower tax rate than teachers and firefighters. We’re going to restore fairness to the tax code” and attacking large corporations for paying zero federal tax regardless of making over $40 billion in earnings. This all culminated within the Home Methods and Means Committee approving the legislative tax provisions of the Construct Again Higher Act, designed to implement President Biden’s proposed tax legislation adjustments, on September 15. A lot has been written about how the rich avoid paying their “fair share” of taxes and how to prepare for the Biden Administration’s most recent tax proposals focusing on the rich. One set of adjustments in Biden’s proposals completely affecting the wealthy are people who apply to the federal property tax, generally referred to as the “dying tax.”

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When relevant, the mixed federal and state property tax can cut back a household’s wealth by greater than 50%. Underneath the brand new proposals, the property tax exemption could be reduce in half and the property tax would apply to anybody value greater than $6 million and married {couples} value greater than $12 million. That is anticipated to double the variety of people who owe property tax from an estimated .02 to .04 % of all People. Because of this, wealthy households are scrambling to make adjustments to their property plans in hopes of preserving their wealth for future generations. Sadly for them, avoiding property tax will do little to protect their wealth.

Let’s discuss concerning the elephant within the room: Conventional property planning doesn’t work. A widely referenced study printed by the Williams Group discovered that 70% of wealth is misplaced by the second era and 90% of wealth is passed by the third. The research additionally discovered that solely a small variety of circumstances — about 15% in complete — pointed to an absence of property planning, poor planning methods and authorized points. In different phrases, in 85% of the circumstances conventional property planning failed. Regardless of these rich households having wills, trusts, household restricted partnerships and the like, and regardless of them deploying refined methods to mitigate or keep away from paying property taxes, their wealth was nonetheless passed by the second and third generations. So, in case you already didn’t know: Paying much less tax won’t make your youngsters or grandchildren rich. 

If the objective is to create generational wealth, then we’re going about all of it improper. Conventional property planning focuses on preserving your “property,” (i.e., what you personal once you die). It doesn’t concentrate on why you personal it. Saving on property taxes is simply one other method of preserving what you personal. It says nothing about why. With out understanding the aim behind an asset, it’s not possible to correctly handle that asset as a result of there isn’t a unified or outlined objective or motive for its existence. Monetary property of any form (together with chilly, arduous money) don’t have any intrinsic worth — their worth is derived from their software. The worth of a greenback is what you are able to do with it, not the paper itself. Due to this fact, if you wish to protect the worth of your property once you die — if you wish to create generational wealth — you need to protect the aim behind the asset. You need to protect its meant software. In any other case, your property don’t have any path. It’s the lack of outlined goal and path for property in an property plan that results in the primary causes cited within the Williams Group’s research for wealth being made and misplaced inside three generations: a breakdown in belief and communication amongst relations and inadequately ready heirs.

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Earlier than you’ll be able to perceive the aim behind your property, you could first perceive the aim behind your life. That is your “legacy,” solely forward-looking as an alternative of in hindsight. Whereas legacy is one thing by definition left behind, additionally it is one thing constructed and lived within the current. An individual’s legacy is a mirrored image of what their life meant and the aim their life served. Understanding your goal and designing your life in a method that empowers you to attain that goal is proactively constructing your legacy. That goal — your legacy — should be infused into property you personal in order that it may possibly turn out to be a part of your property and proceed past your life. That is the place conventional property planning and legacy planning intersect. Nonetheless, with out the legacy planning element, your property plan is doomed to fail and your monetary wealth will more than likely be misplaced inside a few generations.

Cash is just not a goal. Monetary wealth is just not a goal. Avoiding taxes is just not a goal. These are all merely assets and instruments designed that can assist you accomplish your life targets and goal. The issue for the wealthy is just not the specter of being taxed extra. It’s their continuous concentrate on what, as an alternative of why. If the wealthy must be fearful about something, it’s by no means discovering their life goal.

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