Charity, Heirs or the IRS 

Challenge: A couple, retired and in their late 60s, accumulated a significant level of wealth over their working lives. Their assets include two homes, farmland, a large retirement account and other taxable savings. With a taxable estate growing at 8% per year, and annual spending of less than 4%, they are pushed further into the estate tax system with each passing year. Faced with a potential tax bill of $3 million, the family has three potential beneficiaries of their estate – charity, their heirs, or the IRS. The family wants a plan to maximize the eventual estate transfer to their children. The private couple was also uncertain about when and how they would like to share details of their wealth with their sons.

The Canal Capital Solution: We helped our client implement a number of strategies to reduce the taxable estate including: funding 529 plans for grandchildren, annual exclusions gifting, converting traditional IRA assets to Roth IRAs, establishing a Donor Advised Fund*, organizing a family partnership and funding a Qualified Personal Residence Trust (QPRT) with the beloved second family home. Recognizing this challenge is as much about family dynamics as finances, we will also facilitate family meetings where we will educate heirs and provide an open forum for questions and discussion. As a result, our clients are able to:

  1. Reduces the expected estate tax liability by millions, leaving more to heirs by ensuring that assets would not have to be sold to pay estate taxes.
  2. Educate the next generation on the complexities and opportunities of having significant wealth, increasing the chances that the wealth will pass across generations.
  3. Reduce taxes by transferring a parcel of land into a qualified conservation easement in exchange for a Federal income tax deduction and Virginia Land Preservation Tax Credits.
  4. Engage their heirs by participating in philanthropy through the DAF*.
  5. Improve their current retirement plan by shifting assets to Roth IRAs


*Donor Advised Fund: A DAF is a philanthropic vehicle that allows donors to make a charitable contribution to the Fund today, receive an immediate tax deduction for the full value of the assets contributed, and then recommend grants from the Fund to various charities over time.