As the year ends with holiday joy and time with loved ones, reviewing your estate plan and making tax-free gifts may not be at the top of your mind. However, it’s the perfect time to ensure your estate is in order and to use the annual gift-tax exemption before it’s gone.
Estate Planning
An estate plan ensures your assets are distributed as you wish, reducing legal disputes and financial burdens for loved ones. Regular updates are essential to account for life changes like births, deaths, marriages, divorces, or financial shifts. Here are key items to review or consider when creating or updating your estate plan:
Update Your Will or Trust
These key documents direct how your assets are distributed. Without them, state law determines asset division, which may not align with your wishes. Life changes like marriage, a child’s birth, or financial shifts may require updates to ensure these documents reflect your current intentions and best support your loved ones.
Plan for Healthcare and Financial Decisions
Ensure you have an Advance Healthcare Directive or Living Will in place. Such documents outline your preferences for medical treatment and end-of-life care if you are unable to make decisions on your own.
Likewise, a Durable or Financial Power of Attorney designates who can manage your finances and to what extent if you’re unable to do so on your own. If you have an existing Advance Directive and/or Durable Power of Attorney, review them to ensure they reflect your wishes.
Review Beneficiary Designations
It’s important to regularly review beneficiary designations on life insurance policies, retirement accounts, and other financial instruments to ensure that those designations align with your current wishes and relationships.
Organize Important Documents and Passwords
Keeping your estate planning documents organized and easily accessible helps save time and avoids future confusion. Store them securely in a water- and fire-resistant lockbox or safe and ensure trusted family members know their location and how to access them.
Additionally, maintain an updated list of usernames and passwords, either as a physical record or through an encrypted digital password manager.
Tax-Free Gifting
If you’re planning to gift assets or leave an inheritance, consider maximizing your tax benefits by taking advantage of the annual gift tax exemption.
The lifetime estate and gift tax exemption for 2024 is $13.61 million per person, meaning a married couple can pass $27.22 million tax-free. However, this is only temporary as the exemption will automatically revert to $5 million (adjusted for inflation) in 2026 if Congress doesn’t make any changes before then.
While there’s no way to know now what revisions (if any) will be enacted to the estate-tax and gift-tax laws, it’s a good idea for you to make “annual exclusion” gifts by the end of the year.
These gifts don’t count toward your exemption and can be up to $18,000 per person for 2024, or if your spouse joins in the gift, $36,000 per person.
If you’re in a position to do so, you should consider making much larger gifts. This is because the Treasury Department issued regulations stating that there won’t be a “clawback” if you make a gift now and the exemption is later reduced.
A further reason to consider year-end gifting is that, in addition to the federal estate tax, nearly half the states have a state estate or inheritance tax. In Oregon, the exemption from estate tax is only $1 million, and in Washington, it’s only $2.193 million.
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Whether you’re creating your first estate plan or revisiting an existing one, please feel free to contact us if you have questions about or need assistance with your estate planning.
You may also be interested in obtaining a copy of Estate Planning (in Plain English)®, written by members of this law firm and available through Skyhorse Publishing, Amazon, Barnes and Noble, and Bookshop (an online bookstore that allows you to support your favorite independently owned bookshop.)
Photo by Tima Miroshnichenko
