Garfunkel Wild - 2023 Year-End Estate Planning Opportunities

WEBINAR - Year-End Estate Planning Opportunities

Thursday, December 14, 2023 | 12:00 - 12:45 PM ET | REGISTER HERE

Estate planning has been challenging in recent years. Drastic changes were proposed, but not enacted, and a major reduction to the Federal estate tax exemption is scheduled for 2026. What we do know is that the sooner you act, the more options you have to save estate taxes for your family. Please take a moment to consider our suggestions and let us know how we can help you implement and realize your goals.

Here are year-end and future estate planning considerations that deserve your attention:

If any changes occurred in your family or to your assets, your estate planning documents should be updated to reflect these developments. Changes may be warranted if, for example, a marriage ended, you sold a major asset or business, you became a grandparent, you received an inheritance, you retired, you have concerns about whether a certain beneficiary can manage his or her inheritance, or the person you named as an Executor, Trustee, or power of attorney or health care agent should no longer be in that role. Existing Trusts should be reviewed to determine if adjustments should be made to its income terms or distributions need to be made for income tax planning reasons.

To reduce your estate tax, and in the spirit of the holidays, you can make annual tax-free gifts to as many people as you would like before 2023 is over. You can give $17,000 per recipient in 2023 (or you can give $34,000 as a married couple). In 2024, this annual tax-free gift amount will be increased to $18,000 (or $36,000 for a married couple). These annual gifts, as well as direct tuition and medical payments, do not use up your Federal Exemption (discussed below). Gifts can be made outright, in trust, or to a 529 college savings plan. You can “front-load” a 529 plan with five years’ worth of gifts to supercharge the gift. We recommend making your annual gifts each year in January to allow future growth to accrue out of your hands but don’t miss 2023’s gifts if you didn’t make them yet.

To reduce your 2023 taxable income, consider charitable giving. You can create a donor-advised fund to receive a charitable deduction but defer distributions to charities of your choice until the need for a contribution arises. Consider giving appreciated stock instead of cash to avoid realizing capital gains on the sale of low basis tax assets. If you are taking annual required minimum distributions (RMDs) from your IRA, you can instead give up to $100,000 of your RMD to charity from your IRA (“Qualified Charitable Distribution”) and pay no income tax on the distribution.

Wealthy individuals should consider taking advantage of the historically high Federal gift and estate tax exemption (i.e., the maximum amount you can give without paying Federal gift or estate tax, known as the “Federal Exemption”) by making a large gift and thereby removing assets and their future appreciation from the taxable estate. The Federal Exemption is $12,920,000 for 2023, increasing to $13,610,000 for 2024, but it is scheduled to be cut in about half in 2026. As the Federal tax rate on amounts exceeding the Federal Exemption is 40%, those whose assets exceed the future exemption amount should take action before the Federal Exemption is reduced in 2026. There are a variety of ways to make gifts we can explore with you. One popular method is an irrevocable Trust for the benefit of a spouse and/or children, often called a SLAT (spousal lifetime access trust). Other techniques include GRATS (grantor retained annuity trusts), QPRTs (qualified personal residence trusts), sales to IDGTs (intentionally defective grantor trusts), family loan forgiveness, ILITs (intervivos (living) life insurance trusts), and charitable trusts. Some of these techniques are more attractive in our current higher interest rate environment. We can explore what fits your circumstances with you.

“Stretch” IRAs, a very valuable planning tool, are no longer available for inherited IRAs received by children and grandchildren. Distributions must be taken, and completed, over a ten-year period. If you do not wish a beneficiary to receive your IRA outright, careful planning must occur to designate a Trust.

Consider state estate tax exposure, as well as Federal tax exposure. Some states do not track the Federal exemption and have a much lower exemption, some states do not allow your spouse to inherit your unused state exemption (portability), and some states have no estate tax on certain relatives, but do not impose a tax on other relatives.

Make it your 2024 resolution to save your family the expense and delay of probate by updating your estate plan to include a revocable trust and reviewing your asset titling and beneficiary designations to make sure your assets will pass to your loved ones as you intend.

2024’s election and 2025 may bring some clarity to the future with respect to the Federal exemption, but please do not wait too long to consult your advisors about the best plan for you.

Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.