2019 Year End Planning
With a late Thanksgiving now in the rear view mirror, the year is quickly drawing to a close. Here are several matters that you may want to address before 2019 is gone.
1. Annual Exclusion Gifting – Each person is entitled to gift up to $15,000 per person, per year ($30,000 for a husband and wife) free from gift tax implications. If you don’t use it, you lose it. This powerful planning strategy can be enhanced by gifting interests in a partnership, LLC or other entity where the opportunity exists to claim a discounted value.
2. Lifetime Gift Opportunities – New regulations related to the lifetime gift exemption recently released by the IRS were welcome news. In addition to the above gift tax exclusion, each person has a lifetime gift tax exemption that allows you to gift tax free up to certain levels. Currently the exemption is $11.4M per person. That will increase to $11.58M in 2020. The amount doubles for a married couple. But the current law will expire and the amount a person can give tax free will be reduced on January 1, 2026. The IRS has now made clear that if the exemption amount is to reduce in the future, the excess amount gifted will not retroactively be subject to the gift or estate tax. This means that there is presently an unprecedented opportunity for wealth to be transferred tax free.
3. Qualified Charitable Distributions (QCDs) from Your IRA – An individual age 70½ or older can make direct charitable gifts from an IRA of up to $100,000 to public charities. The distribution cannot be to a donor advised fund, supporting organization or most private foundations. These distributions, which can include your required minimum distribution, are made tax-free. A QCD reduces your adjusted gross income and taxable income.
4. Annual Review of Estate Planning Documents – Things are always changing. Things change in our personal life because of births, deaths, disabilities, divorces, etc. Laws are also very likely to change from time to time. There have been several significant changes in state and federal law in the last few years. Many older estate plans have been prepared to avoid a potential estate tax problem that no longer exists while exposing these same individuals to higher income taxes. Regular annual review and updating of your trust will go a long way toward making sure your trust works as well when it needs to as the day you signed it.
5. Annual Review of Beneficiary Designations - Many people use beneficiary designations, and for good reason. Some significant assets, including life insurance policies, IRAs, retirement plans and even bank accounts, allow a beneficiary to be named. It’s free, it’s easy, and, when the owner dies, these assets are designed to be paid directly to the individual(s) named as beneficiary, outside of probate. We recommend reviewing beneficiary designations each year to ensure: (1) that there is in fact a designated primary beneficiary and at least one contingent beneficiary; (2) that the designated beneficiary is not incapacitated; and (3) that the beneficiary designation is consistent with your overall estate planning goals.
6. Buy-Sell Agreement Valuations – Many Buy-Sell agreements require an annual agreement by the owners as to the value of the company. Failure to properly value the company as required by the agreement may result in a serious discrepancy (high or low) in the value given upon the occurrence of a triggering event. Be sure you have your annual valuation agreement in place.
7. Annual Business Review Meeting – The annual business review meeting is an opportunity to review your organization’s legal documents to ensure that they are complete, up to date and in compliance with current law. It is also an opportunity to review your exit goals to determine what actions can and should be taken in the coming months to help achieve those goals. This is a meeting that should include your insurance, financial, legal and tax advisors.
We strongly encourage an annual estate planning and business planning review with your advisory team. So take a look at this list and make sure you take any necessary actions before the end of the year.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.