No. 6 – Lifetime Gifting
Most people inclined toward giving to family and friends don’t realize the huge benefits of gifting, said Slott.
“Client are always looking for ways to transfer wealth to children and grandchildren at zero tax cost if possible,” he said. “There are huge benefits to making gifts rather than just leaving the property at death.”
Slott described three tiers of gifting, adding that almost every client should qualify for at least one tier of gifting in 2020:
• Annual exclusion gifts of $15,000 per year per person. These are tax free, but “if you don’t use it, you lose it,” said Slott.
• Exemptions for direct payments. These are unlimited, but must be direct payments to educational or medical institutions to cover the expenses of a loved one, said Slott.
• The lifetime gift exemption. This is also the estate tax exemption, but Slott notes that clients can use it during life as well as after death, and it may pay to use it now while the exemption is a historically high $11,580,000.
No. 7 – Estate Planning After the Secure Act
Because of the lasting impact of 2019’s SECURE Act, the end of 2020 is an ideal time to revisit estate planning in general because so many estate plans relied on the stretch IRA strategy.
“The first thing you want to do is see what a client’s estate plan is,” said Slott. “Check their beneficiary forms—have they named a trust? Do they have contingent beneficiaries?”
Under the SECURE Act, the only beneficiaries who can still stretch an IRA throughout their life expectancy are surviving spouses, minor children of the deceased, disabled beneficiaries, chronically ill beneficiaries and individuals not more than 10 years younger than the IRA owner. Everyone else is subject to the 10-year payout rule.
“Trusts may not work anymore, they may be subject to high trust tax rates,” Slott said. “Convert these traditional IRAs to Roth IRAs, withdraw the funds, do life insurance. These are your action items. It’s up to you to contact your clients now before some other proactive advisor does.”