End-of-Year Check-In: Are Your Investments Aligned with Your Estate Plan?

As the year winds down, it’s the perfect time to reflect on your financial goals and ensure your investments and estate plan are working together seamlessly. If you’ve experienced significant financial or personal changes this year — or even if you haven’t — an end-of-year check-in can help you maximize tax benefits, avoid costly mistakes, and keep your legacy on track.

Here are a few key areas to review before the clock strikes midnight on December 31.

1. Review Your Beneficiary Designations

Beneficiary designations on accounts like 401(k)s, IRAs, and life insurance policies override what’s written in your will or trust. This means outdated designations can cause unintended consequences.

Example: Imagine you remarried but forgot to update the beneficiary on your IRA. If your ex-spouse is still listed, they’ll inherit the account — even if your estate plan says otherwise. Double-check that all beneficiary designations reflect your current wishes.

2. Maximize Tax-Advantaged Gifting

The end of the year is your last chance to take advantage of the annual gift tax exclusion for 2024, which allows you to gift up to $18,000 per recipient without incurring gift taxes.

Example: If you want to reduce the size of your taxable estate, you could gift $18,000 to each of your three children and their spouses. If you’re married, you and your spouse can combine your exclusions to gift $36,000 per person, transferring up to $216,000 out of your estate in one year.

3. Consider Charitable Giving

Donating appreciated assets or setting up a Donor-Advised Fund (DAF) can reduce your taxable income while supporting causes you care about.

Example: If you donate stock valued at $50,000 (originally purchased for $20,000) to a DAF, you avoid paying capital gains tax on the $30,000 appreciation and get a charitable deduction for the full $50,000, all while leaving a charitable legacy.

4. Align Your Investments with Your Estate Plan

Your estate plan and investment strategy should work hand-in-hand to protect and transfer your wealth efficiently. Consider whether your assets are properly titled and whether trusts could help reduce taxes or simplify transfers.

Example: If you’ve invested in rental properties, placing them in a revocable living trust can keep them out of probate, ensuring your heirs receive them quickly and efficiently.

Finish the Year Strong

A little year-end planning can go a long way toward securing your financial future and protecting your legacy. Whether you need to update beneficiary designations, make tax-savvy gifts, or ensure your investments align with your estate plan, taking action now can save you time, stress, and money later.

Contact us today to schedule your end-of-year estate planning review. Let’s make sure 2025 starts off right!

Gifting with Purpose: How to Make Tax-Efficient Gifts to Loved Ones This Holiday Season

The holiday season is a time of giving, and for many families, it’s also a great opportunity to think about how their gifts can do more than bring joy — they can create meaningful financial benefits for both the giver and the recipient. With thoughtful planning, you can make tax-efficient gifts that help your loved ones today while potentially reducing the size of your taxable estate. Here’s how.

Take Advantage of the Annual Gift Tax Exclusion

Every year, the IRS allows you to give a certain amount to as many people as you’d like without triggering gift taxes. For 2024, this annual gift tax exclusion amount is $18,000 per recipient. That means you could give $18,000 to each of your children, grandchildren, or friends — and if you’re married, your spouse can do the same, effectively doubling the exclusion to $36,000 per recipient.

Example: If you have two children and one grandchild, you and your spouse could gift a total of $108,000 this year without impacting your lifetime gift and estate tax exemption. It’s a win-win: your loved ones benefit from the funds now, and you reduce the size of your taxable estate.

Cover Educational or Medical Expenses Directly

Did you know that some gifts don’t count toward your annual exclusion at all? Payments made directly to an educational institution for tuition or to a healthcare provider for medical expenses are entirely tax-free and unlimited.

Example: If your grandchild is attending college, you could pay their tuition directly to the school without it counting against your $18,000 annual exclusion. Similarly, if a loved one has high medical bills, you could cover those costs directly to the provider.

Fund a 529 Plan for Future Education

If you’re thinking about the long-term future of a child or grandchild, contributing to a 529 college savings plan is an excellent option. These accounts grow tax-free as long as the funds are used for qualified education expenses. Better yet, you can front-load up to five years of annual gift exclusions at once.

Example: Let’s say you want to help a newborn grandchild get a head start on their education. In 2024, you could contribute $90,000 ($18,000 x 5 years) into their 529 plan, effectively making a large gift now while still staying within IRS guidelines. Your spouse could do the same, doubling the contribution to $180,000.

Plan Thoughtfully

Gifting can be a powerful way to share your wealth while reducing your tax burden, but it’s essential to do it strategically. If you’re considering making significant gifts this holiday season, consult with an estate planning attorney to ensure you’re maximizing the benefits.

This holiday season, let your gifts be more than thoughtful — let them be purposeful. 🎁

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.

Distribution Options for Your Beneficiaries

One of the main reasons cited for creating an estate plan is to care for loved ones. An estate plan allows you to expressly name beneficiaries to your estate, the methods by which the gifts will be distributed, how the distribution is administered, whether there are any conditions on the gifts, and so forth. Most people want to provide for family members, relatives, or close friends. This post will survey some common options for how you can make the gift.

Outright and free of trust

The most straightforward way to provide for someone is outright and free of trust. Upon your death (or your spouse’s death, or after the second of you to die, etc.), the gift is distributed to the intended beneficiary, and assuming they are above the age of 18, the gift is now owned by them. That’s it. For example, if you leave $40,000 to Person X, then upon your death, Person X receives $40,000 to do whatever they want. It works similarly for percentage or fractional gifts, like 25% of your estate, or 1/3 of your estate. The value is calculated, and when the distribution stage takes place, the beneficiary receives that gift as their own. The limitation to this method of giving is that you relinquish all control over the gift. If the beneficiary was going through some life challenges, like a divorce or a bankruptcy, your gift may end up never reaching the beneficiary at all. Or if they face significant debt, your life’s work may have ended up going straight into the hands of the beneficiary’s creditors.

Sometimes a little nuance is needed. Maybe dropping a large sum of money on someone isn’t the best idea under the circumstances.

In Trust

Leaving a gift in trust for someone can provide a lot of flexibility and oversight. This option creates a trust (a separate trust other than your living trust) naming your beneficiary as the beneficiary of this newly created trust. You also name the Trustee managing the assets held in trust. 

These trusts are created after your death. They are sometimes called “beneficiary trusts”,  “inheritance trusts”, “FBO trusts” (“for the benefit of”), “GST trusts” (generation skipping transfer), “dynasty trusts”, or “asset protection trusts”. For the most part, all of those terms can be interchangeable. They all describe an irrevocable trust set up for the benefit of someone other than yourself. “Irrevocable trust” means that the beneficiary is not able to change the terms of the trust (unlike your living trust, which is amendable during your life). The two main reasons someone may want to create irrevocable inheritance trusts is to 1) retain some control over the gift; and 2) protect the gift from the beneficiary’s creditors (think: the beneficiary’s ex-spouse in a divorce, a plaintiff in a judgment against the beneficiary, or from a bankruptcy). By keeping an inheritance in trust, the assets in trust will not “count” toward the assets of the individual beneficiary, and remain somewhat shielded from those creditors.

If you want to provide for a minor (a child under the age of 18), then a beneficiary trust is the way to go. You can name someone as Trustee of the trust to manage the gift for the benefit of the minor child, and that person does not need to be the child’s parent or guardian. You can specify when, if at all, the minor beneficiary is able to take over as Trustee of their inheritance.

Similarly, you can provide for someone who is financially immature or has addiction issues. A trust allows you to provide for someone even when they are not fully capable of providing for themselves.

Supplemental Needs Trust

Sometimes a beneficiary is receiving government assistance that is means-tested. For example, many MediCal and SSI/SSA benefits have eligibility requirements pertaining to a recipient’s income or net worth. If your beneficiary receives a lump sum inheritance, it could disrupt those benefits. The beneficiary would then need to use their inheritance for their care in place of the government benefits, and they would likely end up destitute, back on the government benefits. By leaving the inheritance in a supplemental needs trust, the trust can provide for the beneficiary without disrupting their means-tested assistance.

With trusts, you can place conditions on your gifts. For example, a common condition for parents is that their children be educated before receiving their inheritance. However, what may be clear in your head, may be ambiguous to someone carrying out your instructions. What does educated mean? Does the child need to earn a degree? Two year degree or four year degree? Does the institution need to be accredited? Does the institution need to be located in the United States? Can it be an online institution? You get the idea. You can place any condition on your gift that you like. However, an estate plan is only as effective as it is executable. There needs to be as little ambiguity in the trust terms as possible.

When you work with an estate planning professional, they will field all of the available options, discuss your goals, and assist you with matching your options and your goals. And after all that, an estate planning professional will make sure the documents are drafted correctly, with as little ambiguity as possible.

How to Disinherit a Family Member

Sometimes there may be a family member who you want to make sure does not receive anything from your trust or estate. Perhaps they have enough financial support that they do not need more or perhaps there is a personal rift. 

It’s important to know that there are certain people who you cannot disinherit by omitting them from your estate planning documents: a spouse and a minor child. There is a presumption in California that you intend to provide for a spouse and for minor children; therefore, leaving them out of your documents is not sufficient. For spouses, minor children, and (really) everyone else, there are steps you can take to make sure that your wishes to exclude someone are legally binding and not subject to litigation. 

What does it mean to disinherit? 

Disinheriting means affirmatively excluding relatives from becoming heirs or beneficiaries of your trust or estate. For example, if someone has an estranged parent or child, they may want to disinherit that person. 

No one is entitled to receive something from you after you die. However, in certain circumstances, spouses and children are presumed to have been intended beneficiaries. If you die without any estate planning documents OR all your named beneficiaries have predeceased you, then your assets could go to your closest living relatives. (Your closest living relatives are determined by state law and the list starts with your children, then your parents, then your siblings, then your nieces and nephews, then aunts and uncles, then cousins, etc.) 

How do I disinherit? 

If there is a close family member who is potentially entitled to receive something (a parent, child, sibling), then it is important that the person is explicitly named and acknowledged, and that the person was intentionally excluded as a beneficiary. 

What about a token gift? 

If you provide a token gift (e.g. $1) then that person becomes a beneficiary. Beneficiaries are afforded rights of notice and due process, regardless of the size of their gift. By learning that they received merely a token gift, they may feel emboldened to file a law suit. Even if their claim ultimately lacks merit, your trustees may feel compelled to settle the suit, since it is often cheaper to settle than to prove the claim lacks merit. If your intention is to EXCLUDE someone, then you probably don’t want them on that list of beneficiaries. 

What about a bigger gift? 

Sometimes, the best way to “get rid” of potential litigation is to give someone enough that it’s not worth their time to file a lawsuit to try to get more. If you give someone $1, it’s easy to say that they have nothing to lose in filing a suit. If you give someone $1000, it may not be worth it to them. 

What about “no contest” clauses? 

A no contest clause is a part of a will or trust that says that anyone who contests the document, and fails, won’t receive anything. In California, courts are reticent to lock potential viable claims out of court. So no contest clauses only practically come into play for claims with zero merit on its face. The economics of litigation often result in out of court settlements, even when a claim lacks merit. Although no contest clauses are considered best practices, you do not want to rely on such a clause to prevent future will or trust contests.  

So what should you do if you want to leave someone out? 

If you decide to disinherit a family member, call us to discuss options for how best to proceed.

Are Holiday Gifts Taxable?

The short answer: Yup! But, spoiler: you probably won’t end up paying any gift taxes on holiday gifts.

A holiday gift is a donative transfer of an asset from one person (donor) to another (donee). A “donative transfer” simply means that the donee didn’t have to do or pay anything for it. It’s a true gift! It’s also a gift that you’re giving during life (intervivos) - as opposed to a gift that you make after you die (i.e. through a will or trust).

There is a tax that could be imposed, but that requires a little more explanation. Just like the government taxes things from your income (income taxes), to certain goods sold (sales tax), to real estate that you own (property taxes), it also taxes the transfer of items. So the gift tax is a transfer tax.

The gift tax is only imposed by the federal government (think: IRS); California doesn’t tax gifts. And it’s only imposed on the donor (the person giving the gift). If you receive a gift, and you live in California, you’re not on the hook for transfer taxes. If you give a gift, and you live in California, you still won’t owe any gift tax to the State of California and probably won’t owe any gift taxes to the federal government.

Here’s why: The federal government has this nifty rule called the “annual exclusion.” What that means is that each resident of the USA can make a gift up to $15,000, per year, to any other person, and not owe any taxes on that gift. In fact, the IRS doesn’t even want to know about it! You don’t have to report it. Married couples can combine that exclusion amount to $30,000 to one person, per year, and still fall within the same rule. So put another way, you’d have to be awfully generous this holiday season to have to deal with gift taxes.

Well, what if you are that generous?

If you make a gift in excess of $15,000 but less than what is called the exemption amount (currently $11.58 million per taxpayer for 2020; $11.7 million for 2021), you won’t owe any gift taxes. However, you do need to report it to the IRS. Once reported, the IRS will deduct the amount of the gift over $15,000 from your total exemption amount that you’re entitled to when you die. For example, if you give a $75,000 gift to your favorite niece this year, you would report a $60,000 gift ($75,000 - $15,000 exclusion amount) and the IRS would walk over to your file and deduct $60,000 from your $11.58 million unified credit. Only $11.52 million left to give before you pay transfer taxes! (The exemption amount involves estate taxes, which we can explain and discuss with you as part of your estate planning process.) 

Until then, may you have a safe, healthy, and generous holiday season!

When It May Not Be So Simple - Family Dynamics

A lot of estate planning deals with issues other than clients’ net worth. The highest hurdles are often tethered to people and not things.

A vast majority of our clients contact us with at least one similar goal in mind: how can we care for our children when we are unable?

This may seem simple. Our clients want to leave everything leftover upon their deaths to their children in equal shares. Done deal.

Sometimes, however, there may be some… complications.

• What if their children are very young?

• What if their child has a physical or cognitive disability? 

• What if their child is incapacitated or has disabilities at the time this gift is made?

• What if their children have addiction issues?

• What if their children are financially or developmentally immature?

• What if they don’t like their children’s life partners? Or fear an acrimonious split?

• What if they want to care for their children, but not spoil them to the point where the children do not pursue their own careers or endeavors?

No one desires any of the above. But these challenges can happen, and must be met with a plan. Our clients need peace of mind that the resources left for a child actually aids that child—in the state they are in at that time, which may involve some of the above conditions. Clients need to be assured that their child’s inheritance doesn’t inadvertently hurt loved ones, or unexpectedly go elsewhere (like to an estranged spouse or lurking creditor).

Or, sometimes, the client doesn’t want anything to go to their children; or they want an uneven distribution to their children. That’s even more of a reason why they need to have a plan specifying their desires. Simply “leaving it up to them” or giving one child substantially less than another, without proper safeguards, invites litigation. And we know our clients certainly don’t want their life’s work to go into a bunch of litigation lawyers’ pockets.

We talk through these situations with clients, as well as ones with more complicated family dynamics. They are hard conversations, but so important to talk about and plan for now, while you can.

Call and schedule a consultation. We can talk about the above, or anything else specific to your situation.

Are Holiday Gifts Subject to the Gift Tax?

The short answer: yup! But the more nuanced answer is that if you are giving a gift or receiving a gift in California, you probably won’t end up paying any gift taxes on holiday gifts.

Let’s take a look at the mechanics of a holiday gift. Without getting overly complicated, a holiday gift is a donative transfer of an asset from one person (donor) to another (donee). A “donative transfer” simply means that no one traded you or paid you anything for it (as in, it’s a true gift). Just like the government taxes your income (income taxes), certain goods sold (sales tax), and also real estate that you own (property taxes), it also taxes the donative transfer of assets. So the gift tax is a transfer tax.

A couple of details: the gift tax is only imposed by the federal government--so only the IRS will tax you, not the state of California--and it’s only imposed on the donor (the person giving the gift). If you receive a gift, and you live in California, you’re not on the hook for transfer taxes.

There are two types of gifts: those you give during life (intervivos) and those you make after you die (like through a will or trust). We’re going to focus on intervivos gifts since most holiday gifts are given during life.

Here’s why most of you will not owe any gift taxes on your holiday gifts. The federal government has this nifty rule called the “annual exclusion”. What that means is that each of you can make a gift up to $15,000, per year, per recipient, and not owe any taxes on that gift. In fact, the IRS doesn’t even want to know about it! You don’t have to report it. Married couples can combine that exclusion amount to $30,000 to one recipient, per year, and still fall within the same rule. So put another way, you’d have to be awfully generous this holiday season to have to deal with gift taxes.

Well, what if you are that generous? What happens if you make a gift that exceeds the annual exclusion?

Now we get to the “unified credit” or estate tax exemption amount. The unified credit is an amount the federal government allows you to gift during your entire lifetime, and combine that amount with whatever you own when you die, and not pay any transfer taxes if you are below the unified credit amount. It’s an amount set by law, and it increases every year based on inflation. The credit amount in the year that you die is what is applied. The exemption level for 2018 is $11.18 million. For example, let’s say you die in 2018 (sorry to bum you out!)--if the total of what you gifted during your life, and what you owned at death is less than $11.18 million then you would pay ZERO transfer taxes. For 2019, that number increases to $11.4 million.

Let’s recap: if you make a gift to someone that’s valued at $15,000 or less, per person, you don’t have to report it, and no transfer taxes are owed, and there’s no reduction in your unified credit amount. If you make a gift in excess of $15,000 but less than the unified credit (currently $11.18 million), you won’t owe any transfer taxes, but you’ll need to report it to the IRS. They’ll walk over to your file, and deduct the amount of the gift from your unified credit amount. For example, if you gift $20,000 to your favorite niece this year, you would report a $5,000 gift ($20,000 - $15,000 exclusion amount) and the IRS would walk over to your file and deduct $5,000 from your $11.18 million unified credit. Only $11.175 million left to give before you pay transfer taxes!

Happy Holidays! And don’t forget to send those ‘thank you’ cards!