As the year draws to a close, it’s an ideal time for individuals and families to review their financial positions and make strategic moves to optimize their wealth and plan for the future. Here are some important considerations:
Maximize Charitable Giving with Tax-Efficient Strategies
Philanthropy is often a key focus for high net worth families, and the year’s end is a prime time to strategize for maximum impact. Donating appreciated assets, such as stocks or real estate, can help avoid capital gains taxes, allowing for a larger contribution without reducing your portfolio’s overall value. A donor-advised fund offers flexibility, enabling you to donate now and distribute funds over time. Setting up charitable trusts, like a Charitable Remainder Trust (CRT), can further extend tax benefits while fulfilling philanthropic goals.
Max Out Contributions to Tax-Advantaged Accounts
Contributing to retirement accounts, such as IRAs or defined benefit plans, provides tax advantages that shouldn’t be overlooked. For high-income earners, consider additional contributions to Health Savings Accounts (HSAs), which offer triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are also tax-free. In certain cases, contributions to a 529 plan for educational savings can yield state tax deductions, and it’s a valuable legacy planning tool for multi-generational families.
Optimize Estate Planning with Gifting and Trust Strategies
Estate planning is always a priority for high net worth families, but year-end offers a reminder to use annual gifting exemptions. The IRS allows each individual to gift a certain amount tax-free every year, currently $18,000. This can reduce the taxable estate while passing wealth directly to heirs. Setting up or revisiting trust structures, such as Irrevocable Life Insurance Trusts (ILITs), can offer significant estate tax benefits and allow for a seamless transfer of wealth to future generations.
Review and Protect Legacy and Succession Plans
With complex family assets and often multiple businesses, it’s critical to review succession and legacy plans to ensure they reflect current family goals. Regularly updating these plans helps prevent unnecessary tax exposure and ensures business continuity. If you haven’t yet conducted a family meeting around estate plans and succession, consider scheduling one to align on goals, share intentions, and address any family questions.
Evaluate Cash Flow and Prepare for Future Investments
Cash flow management is especially important for high net worth families who often have significant upcoming expenses or investments. Conducting a cash flow review can help identify liquidity for real estate acquisitions, business investments, or other large-scale purchases. It also allows you to fine-tune tax efficiency by making distributions in tax-advantaged ways, such as through family partnerships.
Taking the time to review these areas can help individuals and families maximize their financial strategies, enhance tax efficiency, and prepare for opportunities in the year ahead. If you’d like assistance with any of these moves, reach out to our team.