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The end of the year is fast approaching. While these last few months bring holidays and celebrations, they also provide a perfect opportunity to review your finances and annual checklists and make sure that your estate plan is ready for the new year.
Don’t let the ball drop on 2023 without ensuring that you’ve made the most out of 2022 with these key considerations and checklist items.
End-of-Year Financial Considerations
Before the end of the year, ensure you have made the most out of your 2022 financially– max out your annual gift exclusions and retirement contributions when you can, confirm you have completed any required minimum distributions if applicable, and check in with your financial or tax advisors. Please remember the following when reviewing your finances:
1: Make use of your 2022 annual gift exclusion. Remember that this year, you can make gifts of up to $16,000 to any individual without any federal gift tax implications. If you are married, you and your spouse can each make these annual exclusion gifts, effectively doubling the amount to $32,000 per recipient, but if you make the gifts together you would need to file a gift tax return to elect gift-splitting. Annual exclusions amounts are set to increase due to inflation adjustments in 2023, but there is no carry-over on annual exclusion amounts, so you are making these gifts as part of your estate plan, make sure that you have maxed out your 2022 gifts before year-end. Check with your estates & trusts attorney for specific considerations and read more about gift planning and taxes here.
2: Max out your annual retirement plan contribution. If you have earned income, check in to see if you are on track to maximize your retirement contributions – maximum contribution limits vary depending on the type of retirement plan, so if you aren’t sure about which rules apply to you, don’t hesitate to reach out to your financial or tax advisor or your estate planning attorney. If you are age 50 or older, you are eligible to make catch-up contributions to most plans as well, which increases these limits. Remember that 2022 contributions to some retirement plans can be made in the new year up until you file your income tax return.
3: Take your required minimum distributions from retirement accounts. If you are retirement age or beyond, you may already be familiar with required minimum distributions (“RMDs”) – the minimum amount which you must withdraw each year from all of your retirement accounts (other than designated Roth accounts which don’t require withdrawals until the owner has passed). Under current laws, these RMDs must begin in the year you reach 72 years of age, though you may recall the older rules which required that these distributions begin in the year when you reached age 70 ½. You are allowed to withdraw more than your RMD but remember that withdrawals from retirement accounts are included in your taxable income, unless you made designated Roth contributions, other non-deductible contributions which provide basis in the account, or receive certain other non-taxable benefits such as clergy housing allowance. Learn more on the IRS’ website here.
4: Use Qualified Charitable Distributions from retirement accounts to make your charitable contributions. If you are subject to RMDs and are charitably inclined or don’t need the full amount for cash flow or general living expenses, consider making a Qualified Charitable Distribution (“QCD”) directly from your retirement account to a qualified charity. QCDs can help satisfy your annual RMD while removing the distribution from your adjusted gross income – though you do not get to “double dip” and claim the QCD as an itemized deduction. If you have significant retirement assets, keep in mind that, as an individual, you can only make QCDs up to $100,000 per year – so married couples who each have significant retirement assets, can double this amount up to $200,000 per year.
5: Review your income projections and year-end financial picture with your financial and tax advisors. If your income fluctuates year-to-year with bonuses, business profits, or investment changes, this is an ideal time to review investments and check in with your financial and tax advisors to make sure that you are ready for the new year.
Annual Estate Planning Maintenance Reminders
In addition to the financial tasks mentioned above, certain estate planning details should be reviewed periodically, and making this review an annual habit saves you and your loved ones from future confusion and headache.
1: If your children are 18 years old or older, ensure they have a (1) Durable Power of Attorney, (2) an Advance Directive/Designation of Health Care Agent, and (3) a basic Will. As your children reach adulthood – whether they are headed for college or careers – these foundational documents are important tools that ensure you, as their parents, can continue assisting with financial and medical decisions should anything occur. If you have special needs children, these documents may be even more essential to your family as they reach adulthood, and you should discuss your options with your estate planning attorney.
2: Consider whether the Fiduciaries named in your current estate planning documents are still the right choice. Recall and review your documents, paying special attention to the individuals named in the following roles: Personal Representatives or Executors under your Will, Trustees of any trusts (whether under your Will or under a separate agreement), guardians appointed for minor children, the agent/attorney-in-fact under your Durable Power of Attorney, and health care agent/surrogate under your Advanced Directive. If you want to make changes to any of these roles, reach out to your estates & trusts attorney for assistance.
3: Review your directions and instructions in your estate planning documents. While you are reviewing the fiduciaries named in your current estate planning documents, consider whether any of your personal directions or instructions contained in these documents have changed as well. We strive to draft documents that are flexible enough to last for years, however, any changes to your personal and financial lives can warrant updates to your estate plan.
4: If you are the beneficiary or Trustee of a trust, ensure that annual distribution requirements are being met; Trustees should also begin gathering the financial information for tax filings. If you are a Trustee making income distributions, now is a good time to review the trust’s records and financial information and to make sure that required distributions are being met and there is cash on-hand for annual expenses as well as any additional distribution for net income which may be required to be paid out. If you are the beneficiary of a trust and have been receiving distributions, remember that those distributions generally mean that income of the trust will be “passed out” to you on a Schedule K-1 once the trust prepares and files its income tax returns, and you will need to wait for that Schedule K-1 before you file your personal income taxes.
5: Inventory your assets. We encourage clients to keep a kind of inventory of assets, both physical and digital. For physical assets, it is important to update these lists to account for any large purchases or sales, other significant changes in investments, and noting any inheritances. For digital assets, it is important to review your online accounts (both social and financial) and update any password manager or master list you keep and maintain.
6: Confirm your beneficiary designations on retirement accounts and life insurance policies to ensure they are in accordance with your current estate plan. As you review your other assets and begin gathering financial information for taxes, consider checking on your beneficiary designations – whether for retirement accounts, other bank or brokerage accounts, or life insurance policies. This is especially important if you have made other changes to your estate plan, or if your family has changed in any way. Many clients create beneficiary designations when setting up new accounts or starting a new job but may forget to review these designations periodically as their lives and goals change. These beneficiary designations will control the ultimate disposition of your assets rather than the terms of your Will or Revocable Trust, so a periodic review is important to ensure that these designations express your current wishes.
7: Review your estate plan with your loved ones. It may feel odd to raise estate planning issues so close to holidays and other family celebrations, however beginning these discussions while your family is gathered together can help avoid future conflict and confusion by ensuring that everyone is on the same page. Starting the conversation with your family does not need to be formal or cover everything all at once, but if you need additional ideas on approaching these conversations, you can always discuss strategies with your estate planning attorney.
Contact our office today for more information on estate plans, year-end planning or considerations, contributions, and annual maintenance. If you need to create an estate plan, would like to implement changes to an existing plan, or are seeking guidance on strategies which supplement your foundational estate plan, we would be honored to help you meet your goals. Contact us at (443) 589-5600 or get started with your free estate planning checkup here.
At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estates and trusts for their specific needs and desires. If you have questions, please contact us at (443) 589-5600.
Related blog posts:
Relevant Maryland Legislature Passed in the 2022 General Assembly Session
Charitable Planning with Retirement Accounts
How to Have a Conversation With Your Family About Your Wishes for After You Pass
How to Inventory Your Assets for Your Family After You Pass
How to Manage a New or Future Inheritance