Year-End Estate Planning:

Essential Steps to Take Before the New Year

As the year draws to a close, it’s a great time to review your financial and estate plans. Year-end estate planning allows you to ensure your assets are protected, your loved ones are taken care of, and your estate documents reflect your current wishes. Taking action now can also help minimize taxes and avoid potential legal complications for your heirs. Here are some essential steps to consider for year-end estate planning.

1. Review Your Will and Trusts

• Ensure your documents are up-to-date: Major life events like marriages, divorces, births, or deaths might necessitate changes in your will or trust. Review your documents to ensure they reflect your current family situation and intentions.
• Update beneficiary designations: Check that the beneficiaries listed on accounts like retirement plans, life insurance policies, and bank accounts align with your will. Inconsistencies could lead to unintended outcomes.

2. Consider Gifting to Reduce Estate Taxes

• Take advantage of the annual gift tax exclusion: In 2024, you can give up to $17,000 per recipient ($34,000 for married couples) without incurring gift taxes. Making regular gifts can help reduce the size of your taxable estate while providing financial support to loved ones.
• Charitable donations: Donating to charities is another way to reduce your taxable estate. Consider using appreciated stocks or mutual funds for donations, which may also help you avoid capital gains taxes.

3. Review Your Financial Power of Attorney and Healthcare Directives

• Financial power of attorney: Ensure that the person you’ve designated to handle your financial affairs if you become incapacitated is still the right choice.
• Healthcare directives: Confirm that your medical power of attorney and living will accurately reflect your wishes and designate someone you trust to make healthcare decisions on your behalf.

4. Check Trusts for Tax and Distribution Planning

• Irrevocable trusts: If you have irrevocable trusts, confirm that they are properly funded and structured to achieve your estate planning goals. Consider whether additional contributions are needed before year-end to take advantage of tax benefits.
• Grantor trusts: Make sure you’re aware of any income tax implications associated with grantor trusts. The income generated by these trusts is typically taxed to the grantor, so planning ahead can help avoid surprises at tax time.

5. Review Retirement Accounts and Plan for Required Minimum Distributions (RMDs)

• RMDs: If you’re over 73 (or 70½ if you reached this age before January 1, 2020), remember that you’re required to take distributions from traditional IRAs and certain other retirement accounts. Failing to do so can lead to hefty penalties.
• Qualified charitable distributions (QCDs): Individuals over 70½ can use QCDs to donate up to $100,000 per year directly from their IRA to a qualified charity. This counts toward your RMD and can provide a tax benefit.

6. Consider Strategies for High Net-Worth Individuals

• Use of lifetime gift tax exemption: For those with larger estates, consider using a portion of the lifetime gift tax exemption ($12.92 million per individual in 2024) to make tax-free gifts. This is a strategic way to reduce the size of your estate and minimize estate taxes.
• Generation-skipping transfer (GST) trusts: If you wish to provide for grandchildren or future generations, consider setting up a GST trust to minimize taxes on transfers to beneficiaries who are two or more generations below you.

7. Update Digital Estate Plans

• Digital assets: As we rely more on digital accounts and assets, it’s important to ensure that your executor or trustee has access to important online information. Keep an updated list of digital accounts, passwords, and instructions on how they should be handled after your passing.
• Social media accounts: Decide what should happen to your social media accounts and include your wishes in your estate plan. Many platforms offer options to designate a legacy contact or request account deletion.

8. Consult with Estate Planning Professionals

• Tax and legal advice: Laws change, and so do your financial situations. Consulting with an estate planning attorney or a financial planner can help you understand the latest tax implications and estate planning strategies.
• Regular check-ups: It’s a good idea to conduct an annual review with your estate planning team to ensure everything is in place and working as intended.

Final Thoughts

Year-end estate planning might not be the most festive activity, but it’s a vital step in securing your family’s future. By taking the time to review your estate plan before the end of the year, you can help minimize taxes, reduce legal complications, and ensure that your assets are distributed according to your wishes. Don’t wait until the last minute—take action now, and start the new year with peace of mind knowing your estate plan is up-to-date.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Consult a qualified professional for personalized guidance on estate planning.

*Content Prepared by Jonathan Neher

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Avenues to Wealth Financial Advisors and Cambridge are not affiliated.