Jennifer Bordes, Tax Director at LaPorte, recently authored an article on estate planning for New Orleans CityBusiness.
Jennifer is the leader of LaPorte’s Estate Planning Services Group. Teaming with other estate planning professionals including attorneys, insurance agents, trust officers, and financial planners Jennifer takes a holistic approach to ensure that financial and non-financial goals are met. As she writes in her article, an important step in this process is doing an annual financial health check-up.
The full version of the article can be viewed below.
Tax professional weighs in on the importance of an annual financial health check-up
by Jennifer Bordes, CPA, CSEP, MS
Happy New Year! As we ring in the new year, many of us commit to new resolutions. While making your list, don’t forget to include a financial health check-up—namely, estate planning for the future.
Resolutions built around estate planning can not only help you secure a more stable financial future, but they can also help you plan for your family’s future financial needs. If you have not begun the estate planning process, there is no better time to get started. And if you already have a plan in place, take the time to revisit it. Working with a team of trusted advisors—your CPA, an attorney, and tax consultants—will help you get the process started.
Get your affairs in order.
Without a valid will, your wishes and how you want your assets to be passed to others are in jeopardy. Drafting a will that is valid under state law spells out who gets which assets and helps avoid unnecessary expenses and lengthy administrations. You don’t need to make it perfect right away; you can amend your will at any time to reflect a change in family dynamics, a change in business ownership, or merely a change of heart.
Review your beneficiary designations.
There are certain assets that cannot be transferred following the directives in your will. Instead, they pass by contract when you explicitly name a beneficiary. These assets are known as non-probate assets. Examples of these types of assets are life insurance, retirement plans, and annuities. Each year, you should review your beneficiary designations to make sure these special assets are passing to the appropriate person.
Take inventory of your assets.
Each year, you should make a list of all your assets. In this list, include a detailed description of each asset, where it is located, where the titles are being held, and appropriate account numbers and passwords needed to access those assets. Because asset values are so important in the planning process, you or your advisory team should also estimate each asset’s fair market value. Place this list in a secure location along with your other estate planning documents.
Be thinking about the federal estate tax exemption.
The federal estate tax exemption is currently $12.92 million. The exemption eliminates federal estate taxes on amounts up to that threshold that you either (1) gift to family members during your lifetime, or (2) bequeath to someone upon your death. An easier way to think of the estate tax exemption is this: if a person dies in 2023 and has an estate valued at $12,920,100 and has not made any taxable gifts during their lifetime, their estate will owe federal estate tax on only $100.
To fully understand the estate tax exemption, you also need to think about gift taxes.
Take advantage of annual gift tax exemptions.
Each year, you can make tax-free gifts to as many people as you wish with no tax consequences as long as those gifts are valued below a certain threshold. In 2023, the annual gift tax exclusion is $17,000 per recipient. This means that you can gift up to $17,000 to any person—friend, family, coworker, neighbor, etc.— and you will owe no taxes on those gifts.
If you gift above this $17,000 threshold, you will not owe gift taxes right away, but the excess will eat into your $12.92 million estate tax exemption. This makes the annual gift exclusion a powerful estate planning tool. Let’s look at an example to see how the gift tax exclusion and the estate tax exemption work in tandem.
Consider a married couple that has two children and eight grandchildren. The married couple together is granted a $34,000 annual gift tax exemption ($17,000 to each donor), which means they could gift $340,000 to their children and grandchildren in 2023 ($17,000 x 10 recipients x 2) and not use up any of their federal estate tax exemption. If they continue to gift in this manner over the next ten years, they could transfer approximately $3.4 million to their heirs gift-tax free and still have the full estate tax exemption to use at their death.
If this married couple instead gifted each loved one $20,000—only $3,000 more each year—their estate tax exemption would be reduced by $600,000 after 10 years of giving ($3,000 x 10 recipients x 10 years x 2).
Stay tuned to changes in the law.
When Congress passed the 2017 Tax Cuts and Jobs Act, they boosted the federal estate exemption, but only temporarily. Barring any changes from Congress, the estate tax exemption (which is currently $12.92 million in 2023) is set to be cut in half starting in 2026. All eyes are on the sunset of this tax law. It’s more important than ever to preserve your estate tax exemption, and the easiest way to do that is to continue making annual gifts below the gift tax exemption threshold during your lifetime.
In 2023, make it a resolution to meet with your team of advisors to ensure you have a solid estate plan in place. If you’re not sure where to start, we’re always happy to help build the team best suited to your needs.
Jennifer Bordes, CPA, is a tax director with LaPorte CPAs & Business Advisors. She concentrates most of her efforts in the gift, estate, and trust planning arena and focuses principally on serving closely held businesses, high net worth individuals, and family groups. In serving high net worth individuals and closely held businesses for decades, Jennifer has worked with generations of families to ensure the success of the family business as well as the transfer of family wealth through various strategies including gifting.