As we approach the end of the year, it presents a strategic opportunity for advisors to guide their clients in reviewing their wealth and estate planning strategies. This is the perfect time for clients to reflect on their financial objectives and align them with their current and future financial commitments. Whether their interests lie in philanthropy, business transitions, or navigating surplus wealth goals, effective year-end planning can help optimize their financial outlook.

For international advisors, this year-end planning holds additional significance. As their clientele may consist of individuals with financial interests in the US, it becomes paramount to make plans to deal with the complexities of US income and transfer tax laws. Clients with cross-border financial implications can become subject to these US tax laws, and thus, require meticulous planning to minimize potential tax liabilities. International advisors, therefore, play a crucial role in equipping their clients with the necessary information and strategies to effectively manage their wealth and estate amidst a challenging global tax landscape.

Key considerations for year-end gift and estate tax planning
Gift/estate tax exemption: Starting in 2023, clients can take advantage of a lifetime exemption of $12.92 million for 2023 to protect transfers from estate and gift tax. The tax rate for these transfers is 40 per cent. For married couples, the exemption doubles to $25.84 million. The IRS has come out with the new rates for 2024, which is $13,610,000 which means that your clients could give an additional $690,000 on or after January 1, 2024. These exemption amounts also apply to the generation-skipping transfer tax.

Lifetime gifting: Encourage clients to consider making strategic gifts during their lifetime to remove the future appreciation of assets from the taxable estate. These gifts can take various forms, such as outright gifts, funding trusts, or adding to existing trusts using different types of assets. Leveraging gifts through valuation discounts can be beneficial, especially for assets that are not easily marketable or where the donor lacks control.

Spousal Lifetime Access Trusts : Highlight the advantages of SLATs for clients who are cautious about gifting too much. SLATs allow one spouse to access the trust if needed, providing a safety net while still taking advantage of the tax exemption.

Tax Cuts and Jobs Act: Remind clients that the gift and estate tax exemption doubled in 2018 but it is set to decrease in 2026 unless Congress acts. Clients who have the means to make significant gifts are advised to do so before the potential decreases.

Annual exclusion: Inform clients that each person can gift up to $17,000 annually to another person without affecting their lifetime exemption in 2023. This amount is increased to $18,000 for 2024. Educate clients on options for making these gifts directly or into trusts, custodial accounts, or 529 college savings plans and mention the possibility of frontloading up to five years' worth of annual exclusions through 529 plans.

Direct payment of tuition and medical expenses: Explain to clients the strategy of making direct payments for tuition and medical expenses, which are not considered taxable gifts and do not use any portion of the exemption amount, regardless of the beneficiary's relationship to the payer.

By addressing these key points, advisors can help their clients navigate year-end gift and estate tax planning with confidence and optimize their financial strategies for the future.

Year-end income tax planning for advisors
Tax loss harvesting: As advisors, it is crucial to recommend the strategy of selling investments at a loss to offset capital gains. This can significantly reduce taxable income for our clients. Remember, if losses exceed gains, clients can use up to $3,000 to offset ordinary income, with the remaining losses carried forward to future years.

Roth IRA conversion: Educating clients about transitioning from a traditional or employer-sponsored IRA to a Roth IRA is essential. During market downturns, this conversion can be highly beneficial. However, it's important to carefully consider the tax implications and guide clients through the process, ideally with the assistance of an accountant. Remind them of the advantage of tax-free withdrawals in the future, without any required minimum distributions .

Charitable planning: Advisors play a crucial role in guiding clients toward making end-of-year charitable contributions. Highlight the tax benefits of donating appreciated securities, which can help clients avoid capital gains tax. Discuss the various options, such as contributing directly to a charity or using Donor-Advised Funds , private foundations, or charitable trusts. Emphasize that the method of giving can impact tax deductibility limits, and consolidating contributions into a single year can maximize overall tax savings. Collaborating with an accountant can ensure that clients effectively maximize these deductions.

Year-End Required Minimum Distributions and contribution limit planning for advisors
Required Minimum Distributions : As advisors, it is essential to guide clients on the intricacies of RMDs. Ensure that clients understand that most retirement accounts require RMDs to begin at age 73, except for Roth IRAs. Inform them about the complexities regarding inherited IRAs and emphasize the importance of seeking advice from wealth planners for accurate guidance. Highlight that RMDs are classified as ordinary income, which may push individuals into a higher tax bracket. Educate clients on the option of a Qualified Charitable Distribution from their IRA, which allows them to direct up to $100,000 to a public charity and reduce taxable income by the amount of the RMD.

Contribution limits for retirement plans: Advisors should keep clients informed about the contribution limits for retirement plans. For employer-sponsored plans, inform clients that the contribution limit in 2023 is $22,500, with a catch-up option of $7,500 for individuals aged 50 and above. This limit will increase to $23,000 in 2024. For IRAs, inform clients that the contribution limit in 2023 is $6,500, with a catch-up option of $1,000 for individuals aged 50 and above. Highlight that this limit will rise to $7,000 in 2024. Lastly, remind clients that the deadline to make IRA contributions for the year 2023 is April 15, 2024.

Year-end planning in a high-interest-rate environment: Advice for advisors
When it comes to estate planning, it is important to consider the impact of inflation and rising interest rates driven by Federal Reserve policies. These rate changes have significant implications for estate planning vehicles such as Applicable Federal Rates and the 7520 rate .

As advisors, it is crucial to understand the effects of higher interest rates on estate planning techniques. The valuation of split-interest gifts, like QPRTs, CRTs, and GRATs, is directly influenced by these rates. In a high-interest environment, higher rates can reduce the taxable value of the gift, allowing for more favorable utilization of the gift tax exemption.

Let's delve into some specific strategies that advisors should consider
QPRTs and CRTs: QPRTs enable the transfer of a home into a trust, with the grantor retaining the right to live there for a designated period before gifting it to beneficiaries. Higher interest rates may result in a reduced taxable value, enhancing the benefits of this strategy.

CRTs provide an income stream for beneficiaries, with the remainder going to charity. With higher interest rates, the charitable deduction increases, making CRTs advantageous. Funding CRTs with low-basis assets maximizes the deduction without triggering a gain.

Intra-family loans and GRATs
Despite high AFRs, intra-family loans can still be advantageous as they may offer lower rates than commercial options, providing family members with access to liquidity.

GRATs allow for the transfer of asset appreciation to beneficiaries without incurring gift tax, provided that the appreciation exceeds the hurdle rate. While they may be less appealing in a high-rate environment, GRATs remain useful, particularly for those who have already utilized their exemption limits.

Planning opportunities
Despite the challenges posed by a high-interest-rate environment, there are planning opportunities that can benefit tax and estate considerations. As advisors, it is important to discuss these opportunities with your clients to optimize year-end planning strategies.

While a high-interest-rate environment presents its own set of challenges, it also opens the door to unique tax and estate planning opportunities. Levers such as QPRTs, CRTs, intra-family loans, and GRATs can be used strategically to maximize advantages and mitigate tax implications. As financial advisors, it is imperative to remain nimble and adaptive, navigating through the complexities of the financial landscape to provide personalized strategies that align with the evolving needs and financial goals of our clients.