As we enter into the holiday season, probably the last thing people want to deal with is their estate plan. But the end of the year also provides an opportunity for many clients to revisit and reconsider aspects of their estate planning, since there are many asset-protecting strategies that can be put in place at this time of year. The following five topics are ones you may wish to bring up with your clients before we ring in 2014.
1. Give away tax-free gifts.
The easiest and probably most popular year-end tax planning tactic is making use of a client's gift tax exemptions. A married couple has the right to donate up to $28,000 apiece ($14,000 for a single person) to as many deserving beneficiaries as they can find, tax-free for the recipients. This also has the side benefit of moving those assets out of the client's estate.
Of course, that exemption is purely per year, so if the client hasn't made any gifts yet in 2013, now is the time to consider them. One variation to consider: The gifts don't have to be directly made to a person. They can go to a trust, or into premiums for an irrevocable life insurance trust. A perfectly practical Christmas gift this year could be a sizable donation to a grandchild's 529 plan.
2. Begin a business succession.
A structured gifting program can also help the transition of a family business. An owner is entitled to give away equity worth up to that $14,000 each year without incurring any gift taxes. That can help make any long-term succession plan smooth, gradual, and subject to a lot fewer taxable events.
It can also allow the client or the client's ownership group to maintain control of the business even as they are transferring chunks of equity. A gifting program can be used in combination with a family limited partnership or family limited liability company for a full-service transition plan. Proactive advisors might want to mention the possibility of a gifting plan to start before year end to their business-owning clients if only to plant the seed for future years and a far-off succession plan.
3. Schedule an annual meeting.
Many wealthy clients have established one of those family limited partnerships or limited liability companies, even if they exist largely in name only for tax purposes. If one of these entities hasn't held an annual meeting yet this year, December would be a good time to do it. The IRS looks much more kindly on these organizations if the participants treat them like serious business entities.
