During the hustle and bustle of the holiday season, it is important to remember to spend some time preparing for the upcoming year as 2024 winds down. From strategic gift-giving to consulting with your accountant about year-end tax planning, taking necessary retirement account distributions, and ensuring your estate planning documents are properly executed and your Trust funded, now is the time to review the status of these estate and financial matters. Here are five things you can do during December to ensure you are protecting your assets and providing peace of mind for you and your loved ones as we enter 2025.
- Make Gifts to Family Members.
Every individual may gift up to a certain amount to one or more individuals within a calendar year without the giver or the recipient having to report it to the Internal Revenue Service (IRS). This is called the “annual gift tax exclusion” and for 2024, the amount is $18,000. The annual gift tax exclusion amount increases to $19,000 for 2025. For example, let’s say Jane wants to give her daughter Anne $18,000 for Christmas. Jane also wants to give her son Alex $18,000. Jane can do this so long as the total gift amount given to each child is $18,000 or less from January 1, 2024 through December 31, 2024. If Jane is married, she and her spouse may each gift the annual gift tax exclusion amount, meaning Jane and her spouse can gift a total of $36,000 to each Anne and Alex during 2024 (which is known as gift splitting).
However, if Jane alone gave Anne $10,000 at the beginning of 2024 and wants to give Anne another $18,000 in December, Jane will have given Anne a total of $28,000 in 2024 which is over the annual gift tax exclusion amount of $18,000. Gifts over the annual gift tax exclusion to any one person require the filing of a federal gift tax return. In Jane’s case, she would file a federal gift tax return with the IRS reporting a $10,000 gift ($28,000-$18,000 = $10,000). It is vital to note that neither Jane nor Anne pays any federal taxes on the amount over the annual gift tax exclusion amount. This is because Jane has a certain amount that she can gift to individuals over the course of her lifetime (which is tracked by filing the federal gift tax return) before taxes must be paid. This is called the “lifetime exemption” amount, which is $13.61 million for 2024, and includes both lifetime gifts and gifts given at death. For 2025, the lifetime exemption amount will be $13.99 million per individual.
Giving gifts can be a way to spread cheer to the gift recipients while at the same time reducing the value of your estate which will save your heirs estate tax following your death. When making gifts it is important to consider the assets you should retain to pay your own expenses and any care that may be needed in the future. Consult with your estate planning attorney and/or tax preparer to see if gift-giving is a tax savings strategy you should consider in light of your future needs.
2. Consult With an Accountant.
If you have an ownership interest in a small business or commercial property, consult with an accountant regarding end of year income tax planning. Additionally, you may want to check in with your accountant if your ownership interest is held in an LLC, corporation, or other applicable entity because you may need to file a Beneficial Ownership Information (BOI) report with the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) before January 1, 2025, to comply with the regulations of the Corporate Transparency Act that passed at the beginning of this year.
3. Retirement Accounts: Take Your Required Minimum Distribution and/or Confirm Your Designated Beneficiaries.
If you have reached the age where you must take Required Minimum Distributions (RMDs) from your retirement accounts (IRAs, 401(k)s, etc.), you generally must withdraw the RMD before the end of the year. If you do not take your RMD by the end of the year, you may face paying an excise tax on the amount you were required to distribute but did not.
Whether or not you must take RMDs, it is worth spending a few minutes to confirm you have properly designated primary beneficiaries and contingent (back-up) beneficiaries on your retirement accounts. This can typically be easily accomplished by accessing your retirement accounts online and reviewing your designated beneficiaries or asking the financial institution where your retirement accounts are held to send you written confirmation of the beneficiaries on your accounts.
4. Execute Your Estate Plan Documents and Complete Your Trust Funding.
If you plan on traveling for the holidays and/or the winter months, sign your new or updated estate plan documents now so that you have the peace of mind knowing you and your loved ones will be cared for should something happen during your travels. If you created a Revocable Living Trust as part of your estate plan, complete your trust funding. Trust funding is the process of retitling certain assets into the name of your Revocable Living Trust. It also often includes confirming the beneficiary designations on your retirement accounts and life insurance policies. If you did not receive written instructions from your attorney about funding your trust, or have not completed your trust funding, now is a good time to do so.
5. Update Your “Support Team” Contact Information and Password List.
If you do not already have a list, create a document identifying the individuals you have named in your estate plan documents (health care agent, attorney-in-fact, Personal Representative, Trustee, Guardian, Conservator), your lawyer(s), financial planner and accountant, along with their contact information. If you already have such a list, review it to confirm all the information is still accurate. This list will be invaluable to your loved ones should something suddenly happen to you.
Create or update a list of all the digital devices (Smartphone, laptop, etc.) you own and online accounts (Facebook, Instagram, bank accounts, investment accounts, retirement accounts, etc.) that you access online. Make sure the list is in a safe place (physically and/or electronically) and that a trusted individual knows where (and how) to locate it. It will be critical for your attorney-in-fact, Personal Representative and Trustee to have access to this information to monitor the accounts for fraudulent activity, close the accounts, consolidate the accounts, and take other necessary actions.
Making end-of-year financial and estate planning decisions is essential for protecting your assets and loved ones. Whether through utilizing the annual gift tax exclusion amount of $18,000, consulting with your accountant about tax planning, taking required retirement account distributions, or completing your estate plan documents and trust funding, there are several actions you can take to ensure your affairs are in order before year-end. At Samuel, Sayward & Baler LLC, we can help you determine and implement these important year-end planning steps to ensure you are prepared for the coming year.
Attorney Abigail V. Poole is a senior associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is an active member and Immediate Past President of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA). This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
December, 2024
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