Year-End Estate Planning: Understanding Why It’s Essential

As we approach the year’s end, it is essential to consider estate planning steps for 2021. Even if you do not anticipate owing federal estate tax, an annual review can make a difference. The federal estate exemption is currently at a historic high, and the future of the estate exemption and commonly used estate planning strategies is uncertain.

Before considering year-end estate and gift planning opportunities, it is essential to think about your family’s goals. Are you solely focused on decreasing your taxable estate at death? What are your liquidity needs to maintain your lifestyle? Is charitable giving a priority for you? Knowing your goals is the first step to evaluating your current estate plan.

Annual Gifting

Currently, you can give up to $15,000 individually or $30,000 as a married couple tax-free per year, per individual. Annual gifts reduce your estate without utilizing your lifetime exemption. Additionally, you can pay school tuition (excluding room and board) or medical bills for any individual in addition to the annual $15,000 gift as long as these payments are made directly to the institution.

If making annual gifts to a trust with Crummey powers, it is important to deliver Crummey letters to the trust beneficiaries to utilize your annual gift exemption.

Lifetime Exemption

As of 2021, you can make gifts up to $11,700,000 as an individual or $23,400,000 as a married couple tax-free. This historically high estate tax exemption amount is scheduled to expire at the end of 2025, adjusting back to $5,000,000. If your family has an estate in excess of $5,000,000 it is imperative to have discussions with your advisors as soon as possible to take advantage of the planning opportunities that exist today.

Estate Planning

Wills and Beneficiaries

Without a will, the laws of your state will control where your assets go. Hence, it is essential to create your will as part of your year-end estate planning, whether you have a taxable estate or not. Your will is an important road map detailing your wishes after you pass and guides your family as they execute your final wishes. It is best to review your will annually to ensure it is up to date. It is important to note that your will’s designation of beneficiaries will not override your life insurance or retirement plan beneficiaries listed on the actual plans. It is necessary to update those beneficiaries as well as your will.

Charitable Gifts

Charitable contributions are another way to reduce a taxable estate. For 2021, you can deduct 100% of your cash contributions to qualified charities (previously limited to 60% of your adjusted gross income). If made during your lifetime, these contributions are also tax-deductible for income tax purposes. Donating appreciated securities is another great option with dual benefits. You get a charitable deduction for the securities’ fair market value without triggering capital gains tax on the sale of the securities.

Charitable bequests planned for in your will are another tool to reduce a taxable estate when you pass away.

Re-evaluating your estate plan each year is essential, especially as your family celebrates milestones and life events. Future legislative changes for estate and gift tax are unpredictable. It’s vital to evaluate the best estate planning strategies for you and your family based on current tax laws. As always, reach out to ATKG to discuss these estate planning strategies and ensure your current estate plan aligns with your goals.

As of the end of October 2021, the House Way’s and Means Committee’s proposal for the Build Back Better Act has removed proposed provisions impacting current estate tax laws. While this development is seen as a win for families with taxable estates, planning for such estates should not be delayed.

Julie Spurlock is a Tax Senior with ATKG and a Certified Public Accountant. She received a Bachelor of Business Administration degree from St. Mary’s University and a Master’s of Professional Accounting from the University of Texas at Austin. She was named a 2017-2018 Holbrook Scholar by UT and received the 2016-2017 Accounting Excellence Award from the Texas Society of CPAs. 

Contact your ATKG advisor at info@atkgcpa.com or 210.733.6611 to determine if your estate planning strategies align with your current estate plan and goals.

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