When a spouse dies, the survivor loses married-filing-joint status and drops to single tax rates, pushing the same income into much higher brackets. A $4 million portfolio that was taxed at 35% married rates now gets taxed at top single rates on required distributions. The fix: accelerate withdrawals before death to spread the tax hit.
you got a traditional family, you got a husband, wife, they got $2 million, it grows to $4 million. They're living life, everything's great, and then devastation happens. One of the spouses dies. The day that spouse dies, everything in the remaining spouse's life just changed in a lot of ways, but even in the tax way, because they have that year they can file a married filing joint return, but every year after that, they now go to a single taxpayer return. And so instead of $350,000, just to use an example of taxable income to get to a certain bracket, now it's $170,000. $1,000,000. So they still have the $4 million bucks. The RMD is still coming, but now they have to pay at single payer bracket. When we start thinking about what are we going to leave for our spouse, what kind of mess, what kind of tax thing? Now there's another reason to accelerate those so that we don't find our spouse in that trap of now being in single taxpayer brackets.
