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Year-End Estate Planning Considerations and Charitable Intentions

Year-End Estate Planning Considerations and Charitable Intentions

| December 04, 2023

As we get closer to the end of the year, here are some important to-dos to consider regarding your estate planning and charitable gifting intentions.

Estate Planning To-Dos and Considerations

Refresh Your Estate Planning

If you last updated your estate plan five years ago or more, it’s a good idea to pull it out and review it. Changes in health, family dynamics, or financial situations may not reflect your current wishes.

Additionally, as legal frameworks evolve, your documents should comply with those changing laws and regulations. You may also have acquired new assets or liabilities within the five or six years, necessitating adjustments to your documents.

Renew Your Healthcare Proxy and POA

If you don’t regularly refresh your documents, your healthcare proxy and POA may no longer be valid. It could also cause conflict and uncertainty among your loved ones in case of sudden incapacity or death. Your beneficiaries may need to seek the court's intervention to appoint guardianship or conservatorship. Furthermore, many legal offices will give you a hard time with outdated documents.

Keep Your Documents Updated for Your Peace of Mind

Having assurance that your healthcare proxy and power of attorney are current provides peace of mind for you and your loved ones. This confidence stems from knowing, if you’re unable to make decisions for yourself, all parties involved will respect your wishes.

Review and Update Your Beneficiary Elections

Your beneficiary's designation can change over time. Regular reviews before the year ends allow you and your beneficiaries to take charitable remainder trusts that offer tax benefits to the giver and the receiver. It also guarantees that your assets go to your chosen recipients and bypass the probate process.

Consider The Annual Gift Exclusion

Utilize the IRS provision to gift up to $17,000 annually per person or combine exclusions as a married couple to gift up to $34,000 per recipient without incurring a gift tax. This tax-efficient strategy reduces the size of your estate, minimizes taxes, and helps you transfer wealth to your beneficiaries.

Charitable Intentions

Contribute to a Donor-Advised Fund Account

A Donor-Advised Fund (DAF) enables tax-deductible contributions to a sponsoring organization, with donors recommending grants to charities over time. Benefits include an immediate tax deduction, allowing contributions up to 60% of adjusted gross income (AGI) in cash and 30% in non-cash assets.

Contributing to a DAF before the end of the year allows you to take tax deductions in this current year. For instance, with a $1 million AGI, you could contribute $600,000 in cash for a $600,000 tax deduction. DAFs simplify charitable giving by centralizing recommendations and eliminating the need for tracking multiple donations. Remember to assess the fees, investment options, and grant-making requirements in the DAF you choose.

Charitable Planning with CRTs

Charitable trusts are a means of establishing a giving legacy with potential tax benefits. There are two main types of Charitable Remainder Trust (CRT): the Charitable Remainder Annuity Trust (CRAT) and Charitable Remainder Unitrust (CRUT). The basic structures of the two types of CRT are similar, but the payouts are done differently.

With any CRT, the donor contributes assets to the trust. In exchange, they receive regular payments, either for life or for a term of years. When the trust terminates, the remainder of the trust assets passes to the charity or charities named in the trust. The main difference between CRATs and CRUTs is that a CRAT pays the donor a set dollar amounts every year, while a CRUT pays out a fixed percentage of the trust's value, determined annually. That means that CRUT payments fluctuate with the growth of the trust assets, while CRAT payments do not. In both types of trust, the donor can take an income tax deduction based on the projected future value of the charity’s portion of the trust. This is generally a fraction of the current value of the asset, but it can still be beneficial to the donor.

CRTs are often used to help defer capital gains on the sale of assets that have low-cost basis. The CRT itself is tax-exempt, so it can sell assets without immediately recognizing any capital gains. If a donor contributes a low-basis asset, such as business interests, stock, or real estate, the trustee of the trust can liquidate the asset in order to make the required payments out to the donor over time. The donor doesn’t pay taxes on the sale of the assets, but it’s important to understand that the payments the donor receives from the trust will be at least partially taxable. This is a method to defer capital gains taxes, not avoid them altogether. 

CRTs tend to be more attractive in higher interest rate environments. The donor’s income tax deduction is based on the projected future value of the remainder that will pass to the charity. That value is calculated using the interest rate in effect when the trust is funded. A higher interest rate lets the donor take larger distributions in relation to their income tax deduction. Also, when interest rates are high, there are more opportunities to establish CRATs than when rates are low. If that projected future value of the charitable remainder is too low, a CRAT doesn’t work. CRUTs, on the other hand, work in all interest rate environments.

These trusts can be complicated, and they take time to implement, especially when the asset being contributed is interests in a closely held business.  But they have a lot of advantages, and CRT funded with publicly traded stock may be a good year-end tax planning strategy.

Consider Qualified Charitable Distribution (QCDs)

QCDs are tax-free withdrawals from an IRA for individuals aged 70½ or older. The distributions are exempt from taxable income, reducing tax liability and fulfill your IRA's required minimum distribution (RMD) for the year. You have the flexibility to donate to any qualified charity and can make multiple QCDs throughout the year


Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters. Estate Planning services are provided working in conjunction with your Estate Planning Attorney, Tax Attorney and/or CPA. Consult them for specific advice on legal and tax matters. CRN202507--5468663