Year-End Financial Planning Checklist for Your Estate: Maximizing Deductions and Reducing Liabilities

As the year comes to a close, it’s an ideal time to review your estate plan to maximize tax efficiency and ensure that your financial goals are on track. From making strategic gifts to planning for retirement and education funding, these year-end actions can help you protect and grow your wealth for generations to come. Here’s a checklist to guide you through a productive year-end financial review with your estate planning team.

1. Plan Gifts with an Eye on Tax Efficiency

One of the simplest and most effective strategies for reducing estate taxes is through annual gifting. The IRS allows individuals to gift up to a certain amount per recipient each year without incurring gift tax. Meeting with your estate planning attorney before year-end can help you make the most of this annual exclusion. They’ll guide you on structuring gifts to loved ones, friends, or even charitable organizations, helping you reduce the taxable portion of your estate while benefiting those you care about.

2. Collaborate with a CPA for Tax-Saving Opportunities

If you own a closely-held business, consider meeting with a CPA to discuss any year-end tax elections or planning opportunities available to you. Your CPA can guide you through decisions like bonus depreciation, equipment deductions, or qualified business income (QBI) deductions that could positively impact both your personal and business taxes. Working together with your CPA and estate planning attorney can provide a comprehensive strategy to balance short-term tax savings with long-term estate planning goals.

3. Review Retirement Accounts for Strategic Contributions or Distributions

Year-end is a perfect time to assess your retirement accounts, including IRAs, 401(k)s, and pensions, with the help of your financial advisor. If you’re over 73, remember to take any required minimum distributions (RMDs) to avoid tax penalties. Alternatively, if you’re still building your retirement savings, maximizing contributions now can enhance your long-term financial security while providing tax benefits. Your advisor can also help assess the viability of Roth conversions or charitable rollovers if they align with your estate and income strategies.

4. Plan for Future Education and Large Expenses

If part of your estate plan includes providing for your children’s education or other large future expenses, year-end is an excellent time to evaluate and optimize funding strategies. Your financial advisor can help you explore tax-advantaged options like 529 plans or custodial accounts, ensuring your contributions align with both your estate and income planning goals. Additionally, if you anticipate major expenses, such as a wedding or home purchase for a child, your advisor can recommend investment vehicles or structured gifts to prepare financially.

5. Check Property Titling and Trust Funding

Make sure that any real estate, business interests, or other significant assets are properly titled and funded into your trust, if applicable. This ensures that your estate plan will function as intended, avoiding unnecessary probate and streamlining the transition of assets. Year-end is an ideal time to review any recent purchases or changes in your holdings with your estate planning attorney to confirm that all titles, deeds, and designations are up to date.

6. Review Your Estate Plan with Your Advisory Team

As part of your year-end review, consider setting up a meeting with your estate planning attorney, CPA, and financial advisor to discuss your goals for the coming year. Having all your advisors in sync can help identify additional opportunities to protect your wealth, reduce liabilities, and optimize tax savings. This proactive approach ensures your plan is as robust and effective as possible, aligning with any recent changes in tax laws or financial circumstances.

Taking Charge of Your Financial Future

By approaching your estate plan with this year-end checklist, you create an opportunity to protect your legacy and make smart financial choices for yourself and your family. From making tax-efficient gifts to preparing for retirement and education, each step strengthens your estate plan, helping you enter the new year with confidence and peace of mind.

What Happens if You Don’t Properly Fund Your Revocable Trust

Creating a revocable living trust is a key component of many estate plans. It offers benefits such as avoiding probate, maintaining privacy, and allowing for smooth management of assets in case of incapacity or death. However, simply setting up a trust isn’t enough. If you do not properly fund your trust—meaning, if you don’t transfer ownership of your assets into the trust—the trust cannot effectively accomplish its intended purposes.

1. What Does It Mean to "Fund" a Revocable Trust?

Funding a revocable trust involves transferring ownership of your assets from your name into the name of the trust. This is essential because while the trust document itself outlines how assets should be managed or distributed, it can only govern assets that are legally owned by the trust. If you do not transfer ownership of your assets into the trust, those assets may not be subject to the trust’s terms.

To fund your trust, you need to:

• Retitle assets, such as real estate, bank accounts, and investment accounts, in the name of the trust.

• Designate the trust as the beneficiary of life insurance policies (in certain situations), or other accounts, if appropriate.

• Transfer tangible personal property (such as vehicles, jewelry, and valuable collectibles) into the trust, often through a general assignment document.

2. The Consequences of Not Funding Your Trust

If you fail to properly fund your trust, the benefits of having a revocable living trust are significantly reduced. Here are the major consequences of not funding your trust:

a. Your Estate May Still Go Through Probate One of the primary reasons people create revocable living trusts is to avoid probate—the court-supervised process of distributing assets upon death. Assets that are properly funded into a trust can be distributed without going through probate. However, if you don’t transfer your assets into the trust, those assets will likely still have to go through probate. For example, if you own a home but fail to transfer it into your trust, the home may need to go through probate, subjecting your beneficiaries to delays, costs, and public scrutiny.

b. Loss of Privacy Assets distributed through probate become part of the public record, meaning that anyone can view the details of your estate. A funded trust keeps this information private, shielding your assets and beneficiaries from public disclosure. Without proper funding, the probate process makes the details of your estate a matter of public record.

c. Inability to Manage Assets During Incapacity A key benefit of a revocable trust is the ability for a successor trustee to step in and manage your assets if you become incapacitated. If your assets aren’t properly transferred to the trust, the successor trustee may have no authority over them. This could force your family to go through a court-appointed conservatorship to manage your assets, which is costly, time-consuming, and often emotionally difficult.

d. Increased Costs for Your Heirs If your assets must go through probate because they were not properly transferred to your trust, your heirs may face additional costs, including court fees, attorney fees, and administrative expenses. These costs can quickly add up, reducing the overall value of your estate that will eventually go to your beneficiaries.

e. Potential for Conflict Among Heirs A properly funded trust helps streamline the process of distributing assets according to your wishes. If your assets aren’t in the trust, it can create confusion and lead to conflicts among heirs. For example, if some assets are in the trust and others aren’t, it can lead to disputes about what should be included in the distribution or how assets should be divided. This is especially true in blended families or situations where heirs may have conflicting interests.

3. What Assets Should Be Funded Into Your Trust?

Almost any asset you own can be transferred into a revocable living trust. Key examples include:

• Real estate: Transfer your home and any investment properties into the trust to avoid probate and simplify distribution.

• Bank accounts: Checking, savings, and money market accounts can be retitled in the name of your trust.

• Investment accounts: Stocks, bonds, mutual funds, and brokerage accounts can be transferred into the trust. However, retirement accounts such as IRAs and 401(k)s generally should not be retitled in the name of the trust, but you may choose to name the trust as a beneficiary.

• Life insurance policies: You can designate your trust as the beneficiary of life insurance policies to ensure that the proceeds are distributed according to your wishes.

• Tangible personal property: Items such as cars, artwork, jewelry, and other valuables should be transferred into the trust through a general assignment document or by retitling, if applicable.

Some assets, like retirement accounts or annuities, may have specific tax implications if transferred directly into the trust. It is important to work with an estate planning attorney to determine the best strategy for these types of assets.

4. How to Ensure Your Trust is Properly Funded

Properly funding your trust is crucial to making it work as intended. Here are steps you can take to ensure your trust is fully funded:

• Inventory Your Assets: Begin by making a comprehensive list of all your assets. This will help you identify which assets need to be transferred into the trust.

• Retitle Assets: Work with your attorney, bank, or financial institution to ensure that assets are correctly retitled in the name of your trust.

• Update Beneficiary Designations: Review and update the beneficiary designations on your life insurance policies, retirement accounts, and other accounts.

• Regularly Review Your Trust: Over time, you may acquire new assets or sell existing ones. It’s important to regularly review your trust to ensure that any new assets are properly transferred into the trust and that your estate plan remains up-to-date.

5. What Happens if You Miss an Asset?

If you fail to transfer certain assets into your trust during your lifetime, a "pour-over will" can serve as a backup. A pour-over will directs that any assets not already in the trust at the time of your death be transferred (or "poured over") into the trust. However, assets passing through a pour-over will must still go through probate, so it is best to fully fund your trust during your lifetime to avoid probate entirely.

A revocable living trust can provide significant benefits, from avoiding probate to protecting your privacy. But those benefits are only realized if you properly fund the trust. Failing to transfer assets into your trust can result in your estate going through probate, increased costs for your heirs, and potential conflict among beneficiaries. To ensure your trust works as intended, it’s essential to fund it correctly and review it regularly as part of your overall estate plan.

If you have questions about funding your revocable living trust or need assistance in ensuring your estate plan is fully in place, consult with an experienced estate planning attorney. Taking the time now to properly fund your trust can save your family time, money, and stress in the future.

Are Trust Deposits FDIC Insured?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that provides insurance to depositors in case a bank or savings institution fails. The FDIC was established in 1933, after the Great Depression, to maintain stability and public confidence in the banking system.

FDIC insurance provides depositors with protection up to a certain amount per depositor, per insured bank. The current standard insurance limit is $250,000 per depositor, per insured bank. This means that if you have $250,000 or less in deposits in a single insured bank, your deposits are fully insured. If you have more than $250,000 in deposits in a single bank, the excess amount may not be covered by FDIC insurance.

When it comes to revocable trusts (aka living trusts), FDIC insurance covers deposits in accounts owned by the trust, as long as certain requirements are met. A revocable trust is a type of trust that can be changed or revoked by the owner (also known as the trustor, grantor or settlor) at any time. To qualify for FDIC insurance coverage, the revocable trust must meet the following requirements:

• The trust must be a valid trust under state law.

• The trust must be revocable.

• The beneficiaries of the trust must be individuals or charities.

• The account title must reflect that the account is held in the name of the revocable trust (e.g., "John Doe, trustee of the Jane Smith Revocable Trust").

If these requirements are met, the FDIC will insure the deposits in the trust up to the standard insurance limit of $250,000 per depositor, per insured bank. The insurance coverage on deposits is unchanged whether you hold it in trust or not. However, It's important to note that the $250,000 limit applies to each unique beneficiary of the trust, which is different than deposits in your individual name. So, if the trust has multiple beneficiaries, each beneficiary can be insured up to $250,000, up to a maximum of 5, for a total of up to $1,250,000 in coverage for a five-beneficiary trust.

Overall, FDIC insurance provides depositors with peace of mind that their deposits are protected in case their bank or savings institution fails. By naming your living trust as the account holder, you can extend FDIC protection to the beneficiaries of your trust.

Funding Your Trust

Once you have created a trust, it’s important that you “fund” it. Funding the trust essentially means that you transfer ownership of your assets into the name of the trust. Instead of your name being on the account, it’s your name as trustee of the trust on the account. 

For example: the checking account of Joan Johnson becomes the checking account of Joan Johnson, trustee of the Johnson Living Trust, dated March 3, 2020. 

It is critical to fund your trust to avoid the time, expense, and public nature of probate. And to have a plan in place if an unexpected crisis arises. Having a trust unto itself doesn’t help you achieve that end; you have to get your assets into the name of the trust for the trust to be effective. Ideally, everything you own, besides your retirement accounts, is typically transferred into a living trust. If you don’t put your assets (like your house) into your trust, then your estate may still go through probate!

When we set up a trust for you, we provide you with complete funding instruction to address each type of asset and how to move it into the name of the trust. And if any questions arise, we welcome our clients to call us with any questions.