Estate Planning Month: Year-End Estate Planning Considerations

October is Estate Planning Month and now is a great time to consider spending some time reviewing your tax and financial situation to see if you are doing enough to prepare for the future. One area to focus on would be your estate plan. As you consider your estate, here are a few items for careful consideration.

Take the time to view your possible capital gains while deciding if it is more advantageous to recognize losses or realize gains for the current year. It may make sense to recognize some losses to decrease your overall capital gains tax burden; however, remember that for federal income tax purposes net capital losses are limited to $3,000. Excess losses can be carried forward indefinitely.

Utilizing a Roth IRA account can be very appealing as it pays taxes now to avoid taxes later, especially if you believe you will have a higher income in the future. This is also beneficial if you plan to pass the account on to your heirs as the assets grow tax-free and are not subject to a required minimum distribution.

Once you are over the age of 72, minimum distributions are required from a traditional IRA. One way to take the required distribution while avoiding taxes on the additional income would be to make qualified charitable distributions. Qualified charitable distributions are made directly to a charity from your traditional IRA once reach the age of 70-1/2 and are limited to $100,000 per year.

If possible, it is advised to fully fund your 401(k) or similar retirement plans each year. This is a benefit in the long run as it maximizes retirement savings that grow either tax-deferred or tax-free and may help decrease your current tax liability.

If you have sufficient assets, annual gifting is a great option as it can be a powerful wealth transfer technique applied over time. During 2024, an individual can give up to $18,000 to as many individuals as they choose without utilizing any of their federal lifetime gift and estate tax exemption amount. Another great tool to benefit your family members over time is a Section 529 Plan which is for education. A Section 529 Plan can be made with annual exclusion gifts for individuals. The money in the plan can then be used for any tuition expenses towards education from preschool through graduate school, but does not include charges such as room and board.

When enrolled in a high-deductible health insurance plan, a Health Savings Account (HSA) that is fully funded is a great benefit. This is because funds in an HSA do not need to be spent in that calendar year and can instead be invested for future medical expenses - essentially as if it were another type of savings account. However, there are limits for the amount that can be contributed into an HSA. For 2024 these are $4,150 for individuals and $8,300 for families. Individuals who are 55 or older can also contribute an additional $1,000 as a catch-up contribution.

Year-end is an appropriate time to review your estate planning documents, such as your will, trusts, healthcare proxy, and durable power of attorney. Also, take the time to review your beneficiary designations for any IRA, 401(k), or insurance policies. These are important to update every year as the trusted parties named in the documents can change and you should ensure the information is still appropriately reflecting your current wishes.

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