Whether you’re considering wealth transfer, focusing on retirement funding, or other planning opportunities, the start of a new year is an excellent time to take stock of your financial and estate planning goals. Taking action early in the year can help you maximize the benefits available in 2025 and beyond. Below are several considerations that are top of mind for our clients:
Wealth Transfer
Estate and Gift Tax Exclusion: If transferring wealth to or for the benefit of family members is among your goals, this year is an opportune time to do so. The current elevated federal estate and gift tax exclusion of $13.99 million per person is scheduled to reduce to about $7.2 million per person beginning in 2026. Questions remain about whether Congress will act to stop this reduction, commonly referred to as a “sunset,” before 2026. If it is sound planning for you to gift at the current exclusion level, whether Congress acts to extend it beyond 2025 should be irrelevant. Gifting now removes future appreciation of gifted assets from your estate. If you are considering utilizing a trust to receive the gifts, we recommend coordinating with your estate planning attorney during the first quarter of 2025 to get the drafting process in motion.
Learn More: Planning Opportunities Before the Tax Cuts and Jobs Act Sunset
Learn More: Spousal Lifetime Access Trusts
Learn More: Asset Protection Trust Benefits
Gifts of Hard-to-Value Assets: If you are considering transferring hard-to-value assets to family members or trusts for their benefit, keep in mind that you will need a qualified appraiser to value the assets as of the date of the gift for gift tax reporting purposes. Given the impending sunset, starting this process as early as possible is important.
Annual Exclusion Gifts: Whether you plan to use your full federal estate and gift tax exclusion or not, maximizing annual exclusion gifts can be an effective way to transfer wealth over the years. You can make gifts of up to $19,000 to as many recipients as you wish, or $38,000 if you are married and elect to gift-split with your spouse. In addition, tuition payments and payments for medical expenses, both made directly to the provider, do not count as gifts for annual exclusion purposes. Good planning also includes making annual exclusion gifts early in a calendar year.
Wealth Planning
Retirement Savings: Employees can contribute up to $23,500 to their employer sponsored 401(k), 403(b) or 457(b) plan, and should consider doing so. Employees over age 50 can contribute an additional $7,500 to their plan as a catch-up contribution. New in 2025 is the enhanced catch-up contribution available to those who will be age 60, 61, 62, or 63 as of December 31, 2025. For those 60-somethings, the $7,500 catch-up contribution is increased to $11,250, allowing them to contribute up to $34,750 to the plan in addition to any employer match. Please note that beginning in 2026, catch-up contributions for employees earning over $145,000 (indexed) will be required to be made to the Roth portion of the plan, which means they will be made on an after-tax basis.
Roth Conversions: 2025 may be a particularly attractive year to convert traditional IRA and retirement plan assets to Roth IRAs. If Congress does not act, the top federal tax income tax rate will increase from 37% to 39.6% effective January 1, 2026. At that point there will also be a narrowing of tax brackets. As a result, under existing law, the income recognized on a conversion in 2025 may be taxed at a lower rate than it would be in 2026, even if you are not in the highest tax bracket. Assets in a Roth are taxed at the time of contribution or conversion, and then grow income tax-free. Roth assets also avoid required minimum distributions (RMDs) during the employee and their surviving spouse’s lifetime. These two facts lead to Roth assets being powerful from both a compounding and future income tax management perspective, as well as an attractive asset to inherit. Roth assets can grow income tax free for ten years beyond the second-to-die of the employee and their spouse. Employees should also consider making their contributions to Roth 401(k)s or similar if they are not already doing so, even though there will be a current tax liability associated with it.
Learn More: Roth Conversions: Is Now the Time?
Qualified Charitable Distributions or QCDs: Once someone is over age 70 ½, they can donate up to $108,000 per year from their traditional IRA to one or more qualified charities while avoiding income tax on the distribution. In addition, the amount distributed can count towards RMDs for the year. To qualify, the amounts must be paid directly from the IRA to the qualified charity, and the charity cannot be a donor advised fund or private foundation. The ability to make a QCD hinges on being over age 70 ½ and can be done even if the individual is not yet subject to RMDs, which currently begin at age 73.
Housekeeping
Estate Plan: Does your estate plan reflect your current wishes? If not, now is an ideal time to update it. In doing so, remember to verify that the appropriate parties are named in the various roles including guardian of your minor children, executor/personal representative, trustee, agent under a durable power of attorney, and health care agent.
Beneficiary Designations: Take a moment and review the beneficiary designations for your IRA and 401(k) plans as well as any life insurance you may own personally or have through your employer. Make sure the beneficiary designations do not “undo” or run counter to your estate plan. Also, if you name a trust as a beneficiary, make sure the assets will flow as you intend.
Umbrella/Excess Liability Coverage: If you do not have umbrella insurance, consider asking your property and casualty agent about obtaining some. If you do have umbrella insurance, review your coverage amount to make sure your interests will be adequately protected given your risk profile.
Freeze Your Credit: After reviewing your credit reports, go to Equifax, Experian, and TransUnion and freeze your credit if you have not already done so. With so many security breaches over the last few years, it is prudent to take the time to freeze your credit as well as that of your children.
Learn more: Proactive Measures to Protect Your Identity
If you have any questions or would like to discuss your specific circumstances, we encourage you to reach out to your Fiduciary Trust Officer or contact Sid Queler at queler@fiduciary-trust.com. Our team is here to provide personalized guidance and support tailored to you.
Published Date: January 6, 2025
