One of the most common questions I hear from families at Manna Wealth Management is:
“David, how can I leave money to my kids without Uncle Sam taking a big chunk of it?”
It’s a good question, and it comes from a place of love. You’ve worked hard, you’ve saved, and now you want to make sure the people you care about most actually benefit from that effort — not the IRS.
The good news? With the right planning, you can pass on wealth efficiently and with far less tax burden. Let’s talk about how.
The Basics: What Gets Taxed and What Doesn’t
When someone passes away, there are two main types of taxes to think about:
- Estate Taxes
- This is the tax on your entire estate before it gets passed down.
- Right now, the federal exemption is very high (over $13 million per person in 2025), so most families won’t face federal estate taxes.
- But this exemption could change in the future.
- Income Taxes
- Your kids may have to pay taxes when they inherit retirement accounts like IRAs or 401(k)s.
- For example, under current rules, most beneficiaries must withdraw the entire balance of an inherited IRA within 10 years. That could mean higher taxes for them during their working years.
So while estate taxes may not hit most families, income taxes on retirement accounts often do.
Strategies to Pass Down Money Without Heavy Taxes
1. Gifting While You’re Alive
You don’t have to wait until you pass away to start helping your kids.
- In 2025, you can gift up to $18,000 per year, per person, without triggering gift taxes.
- That means if you’re married, you and your spouse can give a child $36,000 a year, completely tax-free.
- Do this over time, and you can pass on a lot of wealth while also seeing your kids enjoy it.
2. Roth Conversions
Traditional IRAs and 401(k)s come with taxes when withdrawn. But Roth IRAs? Withdrawals are tax-free.
- By converting some of your retirement savings into a Roth while you’re alive, you pay the taxes now at your rate.
- Your kids inherit the Roth, and when they pull the money out, it’s tax-free.
Yes, it means you pay some taxes today, but it may save your kids from paying at a much higher rate later.
3. Life Insurance as a Tax-Free Tool
Life insurance is often overlooked as a way to transfer wealth.
- The payout from a life insurance policy is generally tax-free to your heirs.
- You can use it to create a guaranteed legacy, no matter what happens in the market.
- Many of my clients use life insurance specifically as a way to leave behind a clean, tax-free inheritance.
4. Trusts
A trust allows you to control how and when your money gets passed down.
- For example, instead of your kids getting a lump sum at once, you can structure distributions over time.
- Certain trusts can also help reduce taxes and keep your estate out of probate.
Trusts aren’t just for the ultra-wealthy — they’re for anyone who wants clarity and control.
Real-Life Example
A client of mine — let’s call him Mike — had saved a little over $1.2 million. His biggest concern? Making sure his two kids inherited the money without being hit with huge taxes.
Here’s what we did:
- We converted part of his IRA into a Roth each year (spreading out the tax bill instead of taking it all at once).
- We set up a modest life insurance policy so his kids would receive a tax-free payout no matter what.
- We also created a trust to make sure the money was distributed wisely, not all at once.
This combination gave Mike peace of mind. He knew his kids would be financially secure — and that he wasn’t handing them a tax headache.
Why Planning Ahead Matters
If you do nothing, the default may not be what you want:
- Kids could be forced to take large taxable withdrawals.
- Probate could tie up your estate for months (or even years).
- Without guidance, money might be spent faster than you’d like.
But with some thoughtful planning, you can make sure your legacy supports your kids in the way you intended.
Final Thoughts
Leaving money to your kids without heavy taxes isn’t just about numbers — it’s about making sure your hard work truly benefits the next generation.
Every family’s situation is unique, which is why I take the time to sit down with clients, look at the big picture, and create a personalized plan.
If you’d like to explore the best strategy for your family, you can contact me here. And if you’d like to learn more about my background and approach, here’s a little about me: David Kassir.
At Manna Wealth Management, my goal is simple: help you protect your wealth, enjoy retirement, and leave behind a legacy that lasts.
Because at the end of the day, money isn’t just about you — it’s about the people you love.
