Year End Planning for a Prosperous New Year

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As you make your holiday plans and prepare to ring in the New Year, it is also a great time to review your estate and tax plan. The following estate and tax planning tips may be useful in ensuring that your family has a protected and prosperous New Year.

Estate Planning

  • Annual Gifting. The annual gift tax exclusion is a simple, yet effective way to transfer wealth to children and grandchildren. In 2013, individuals can give up to $14,000 and married couples can give up to $28,000 to anyone they wish without payment of gift tax and without reducing their lifetime gift tax exemptions. The annual gift tax exclusion can be used to fund 529 Plans for children and grandchildren as well.
  • Review your Estate Plan. Did any changes occur in 2013 that affect your estate plan, such as the birth of a child or grandchild, the engagement or marriage of a child, or the death of a family member? Are the individuals that you have designated as your fiduciaries (your executor, guardian, trustee, attorney in fact, and health care representative) still appropriate? Generally, you should review your estate plan every three to five years to ensure that it properly reflects your wishes, but it is particularly important to review your plan following a change in your family.
  • Review Beneficiary Designations. Review the beneficiary designations on your life insurance, 401(k) Plan and IRA. Frequently the final step of a thorough estate plan, updating beneficiary designations, gets postponed. You should review these designations to ensure that they complement your estate plan.
  • Crummey Letters. If you pay the insurance premium on a life insurance policy owned by an irrevocable trust, confirm that the Trustee sent Crummey letters to the beneficiaries of the irrevocable trust and retains copies of those letters.
  • Annual Meetings for FLPs and FLLCs. If a family limited partnership or a family limited liability company is a part of your estate plan, schedule an annual meeting to review the operation of the entity, its assets and their performance. Record minutes from the meeting and retain the minutes in the entity’s minute book.

Income Tax Planning

  • Offset Capital Gains. Review your capital gains and capital losses for 2013 to determine if you should sell assets at a loss in order to offset capital gains.
  • Required Minimum Distribution (RMD). If you are age 70-1/2 or older, generally you must take your RMD by December 31. If you do not need a portion or all of this income, consider a qualified charitable distribution. You can direct all or a portion of your RMD to charity, and the portion directed to charity will not be included in your income for 2013.
  • Review your Flexible Spending Account (FSA). If any funds remain in your account, expend the remaining funds on qualifying expenses to the extent possible in order to avoid forfeiture of the balance of your account. Make any needed adjustments to your 2014 contribution.
  • Distributions from 529 Plans. Distributions must be applied toward qualified education expenses in the same year of the distribution in order to avoid income tax and penalties. If you withdraw funds from a 529 in December, ensure that the education payment is also made in 2013.