Most people know, roughly, what they pay in taxes each year. Fewer have thought about their lifetime tax rate, the total they’ll pay across working years and retirement.

Almost nobody has thought about their generational tax rate.

That’s the combined tax your family pays on the same dollars as they move from you to your children and, sometimes, to your grandchildren. Income tax on inherited retirement accounts. Capital gains tax on assets that didn’t get a step-up. Estate tax, for larger estates. And the cost that isn’t technically a tax at all but works like one: long-term care.

As an estate planning attorney in Arkansas, I see this play out constantly. A couple does everything right. They save, they stay out of debt, they build a farm or a portfolio or a business. Then the plan they leave behind hands their kids a tax bill that was mostly avoidable.

Here’s how that happens, and what you can do about it.

Why Your Kids May Pay More Tax on Your Money Than You Did

The 10-year rule for inherited IRAs

Before 2020, a child who inherited an IRA could stretch withdrawals over their own life expectancy. The SECURE Act ended that for most beneficiaries. Now, adult children generally have to empty an inherited IRA within 10 years. If the parent had already started required minimum distributions, the child also has to take annual withdrawals during that window.

The timing problem

Most people inherit from their parents somewhere between 50 and 65. That’s often the highest-income stretch of their lives.

So the IRA withdrawals don’t get taxed at the parent’s retirement rate. They get taxed on top of the child’s salary, business income, or practice income. A dollar that would have been taxed at 12% or 22% in Mom and Dad’s retirement may be taxed at 32% or more in their child’s hands.

That gap is the core of the generational tax problem.

Strategy 1: Roth Conversions Planned Across Generations

A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay income tax on the amount converted now. After that, qualified withdrawals are tax-free, for you and for your heirs.

Your children still have to empty an inherited Roth within 10 years, but the withdrawals aren’t taxed. They can let it grow for the full decade and withdraw it at the end.

How conversions can lower your own taxes, too

Done carefully, conversions don’t just help the kids. They can reduce your lifetime tax bill:

• Use the gap years. The years between retirement and RMDs (age 73 or 75, depending on your birth year) are often your lowest-income years. Converting then lets you fill lower brackets on purpose.
• Shrink future RMDs. A smaller traditional IRA means smaller required withdrawals later, which can keep you out of higher brackets in your 70s and 80s.
• Manage Medicare premiums. Medicare’s IRMAA surcharges are based on your income from two years earlier. Large RMDs can push you over those thresholds. Planned conversions, done in the right years, can keep you under them later.
• Get ahead of the widow’s penalty. When one spouse dies, the survivor typically files as single. Income often doesn’t drop much, but the tax brackets shrink by about half. Converting while you’re both alive and filing jointly can save the surviving spouse real money.

What to watch

Conversions add income in the year you do them. That can affect IRMAA, ACA premium subsidies, and how much of your Social Security is taxed. Ideally, the tax on a conversion is paid from outside money, not from the IRA itself. This isn’t a “convert everything” strategy. It’s a multi-year plan, and it should be modeled before you start.

Strategy 2: Hold the Right Assets for Life (Step-Up in Basis)

When you die, most assets you own receive a “step-up in basis.” Your heirs inherit them at their fair market value on the date of death, and the capital gain that built up during your life is wiped out.

Here’s a simple example. You bought farmland for $200,000. It’s now worth $1.4 million.

• If you give it to your children while you’re living, they take your $200,000 basis. If they sell, they face tax on roughly $1.2 million of gain.
• If they inherit it at your death, their basis is $1.4 million. They could sell it the next day and owe little or no capital gains tax.

This is why the question isn’t just what you leave, but which assets you spend, give away, or hold:

• Highly appreciated land, stock, and rental property are usually best held for the step-up.
• Cash and high-basis assets tend to be better candidates for lifetime gifts.
• Traditional IRAs and 401(k)s never receive a step-up. That’s exactly why Roth conversions and charitable planning matter so much for those accounts.

Strategy 3: Trusts That Protect the Step-Up

A common misconception is that putting assets in a trust means giving up the step-up. That depends on the trust.

• Revocable living trusts keep the step-up. The assets are still part of your estate for tax purposes.
• Irrevocable trusts can go either way. Depending on how they’re drafted, a trust can include a “swap power” that lets you exchange low-basis trust assets for higher-basis assets you own, pulling the low-basis property back into your estate before death so it can step up.
• Some trusts are designed to be included in your estate on purpose, for families who aren’t worried about estate tax but care a great deal about capital gains.

These are drafting decisions. They need to be made deliberately, and they need to be coordinated with how your accounts are titled and who your beneficiaries are.

Strategy 4: Leave Your IRA to Charity, Not Your Kids

If you plan to leave something to your church, a university, or another charity, the asset you choose matters.

A qualified charity pays no income tax on an inherited IRA. Your children pay full income tax on it. So if you’re leaving money to both, it usually makes sense to name the charity as beneficiary of the IRA (or a portion of it) and leave stepped-up assets like land, stock, or a home to your children.

During life, Qualified Charitable Distributions (QCDs) offer a similar benefit. After age 70½, you can give directly from your IRA to charity. QCDs can count toward your RMD and don’t show up in your taxable income.

Strategy 5: Estate Tax and Generation-Skipping Tax Planning

For 2026, the federal estate and gift tax exemption is $15 million per person. Arkansas doesn’t have a state estate or inheritance tax. Most families won’t owe federal estate tax, but families with significant farmland, a closely held business, or appreciating real estate should keep an eye on it.

For larger estates, trust planning can:

• Shift future growth out of your estate, so appreciation happens in your children’s or grandchildren’s hands instead of yours.
• Use your generation-skipping transfer (GST) exemption, allowing a trust to benefit your children during their lives and then pass to grandchildren without being subject to estate tax again at your children’s deaths.
• Preserve portability. A surviving spouse can use the deceased spouse’s unused exemption, but only if a federal estate tax return is filed after the first death. This is one of the most commonly missed steps in estate administration.

Strategy 6: Plan for Long-Term Care Before You Need It

For many Arkansas families, long-term care is the biggest threat to a lifetime of savings. Nursing home care in Arkansas commonly runs $7,000 to $9,000 a month or more. A few years of care can consume an estate that took decades to build.

You can’t control whether you’ll need care. You can control how prepared you are.

• Medicaid asset protection trusts. An irrevocable trust can protect assets from being counted for Medicaid eligibility, but Arkansas Medicaid looks back five years at transfers. The planning has to happen well before care is needed.
• Insurance. Traditional long-term care insurance or hybrid life/LTC policies can carry part of the risk.
• Medicare decisions at 65. Your choice between Medigap and Medicare Advantage affects your coverage and your out-of-pocket risk for years. In Arkansas, if you skip Medigap during your initial enrollment window, you may face medical underwriting to get it later.
• Crisis planning. If a parent is already entering a nursing home, it’s not too late. There are still planning options, but they’re more limited and more time-sensitive.

Think in Generations, Not Tax Years

Good tax planning asks what you’ll owe this year. Better planning asks what you’ll owe over your lifetime.

Stewardship asks a bigger question: what will your family keep?

A complete plan should answer three things:

1. What will I pay in taxes over my lifetime?
2. What will my children pay when they inherit?
3. What could consume our savings before they ever get the chance?

At L. Jennings Law, we work with families across south Arkansas and Little Rock to coordinate the legal side (trusts, beneficiary designations, Medicaid and long-term care planning) with the tax and investment side of the plan. These pieces work best when they’re built together.