Take Advantage of Year-End Planning Opportunities

It's a good time to take stock of how a portfolio may have changed over the last year, and to look for opportunities to strengthen the portfolio going forward.

As this year draws to a close, our wealth managers are working hard to make sure that you are ready for what lies ahead in 2020. Here are just a few of the important year-end planning opportunities we've been thinking about:

Year-End Gifting Opportunities

If you are interested in transferring wealth to children or grandchildren, the 2019 annual gift exclusion allows for tax-free gifts up to $15,000 per person without it counting toward your lifetime gifting exemption. It's a "use it or lose it" benefit, and we advise taking advantage of it before the end of the year. You can also make tax-free transfers on behalf of another individual directly to a qualifying service provider in connection with medical or tuition expenses.

Charitable Giving Considerations

Those who spread their charitable contributions over a number of years may not receive any tax benefit from these gifts because their combined total deductions fall below the increased standard deduction. In contrast, those who can bunch multiple years of charitable contributions into a single year in order to exceed the standard deduction threshold may be able to fully deduct their contributions.

Using a donor advised fund, such as the independent BNY Mellon Charitable Gift Fund, allows donors to contribute assets to an account. Donors may be able claim an immediate tax deduction and then recommend grants to qualified charities over a period of time. Donors should review their individual circumstances with their tax adviser before making contributions to a donor advised fund.

Gifting appreciated securities that have been held longer than one year may be more beneficial than gifting cash. Doing so would allow a donor to claim a deduction for the fair market value of the securities without having to pay capital gains taxes that would otherwise be incurred upon their sale.

Required Minimum Distributions

If you have traditional IRAs and are over the age of 70½, you are required to take a minimum distribution from your accounts for the 2019 tax year based on the balance of your accounts as of December 31, 2018. Now is the time to determine how you will make the distribution. Consult your advisor and figure out how much you must take and from which account it should be taken.

If you are required to take a minimum distribution from a Traditional IRA but don't require the funds for your own needs, you can choose to make a charitable gift using a Qualified Charitable Distribution (QCD), sometimes known as a “charitable IRA rollover."

A QCD allows an individual to make a charitable gift of up to $100,000 from a traditional IRA and have it count toward the annual minimum required distribution. The individual pays no tax on this distribution; however, there is also no corresponding tax deduction. Payments must be made directly to a public charity, and cannot be made to a donor advised fund or most private foundations.

Interest Rates

The Federal Reserve reversed its course of raising interest rates and reduced short-term rates three times in 2019. Investors with excess cash sitting in bank accounts may want to reevaluate their cash position and risk tolerance, and consider whether putting their cash to work makes more sense.

Lower rates also offer a chance to reevaluate the lending side of your balance sheet. It may be an opportune time to review your outstanding debt or existing contracts tied to interest rates and consider whether you would benefit from refinancing or swapping out of an adjustable rate loan for a fixed rate.

Our experienced private bankers can assist in delivering a tailored solution for cash assets to help make the most of the current interest rate environment.

Estate Plan Updates

If you haven't done so already, this is a good time to review wills, trusts and other estate planning documents to ensure that they reflect any changes in your personal or financial situations that occurred in 2019. Perhaps your family has grown, you've acquired assets that need to be accounted for or simply have a different perspective on how the estate should be handled.

Higher federal exemption amounts can allow for tremendous transfer of wealth and potentially mitigate some of the estate and/or gift tax burden. In 2019, both federal estate and gift exemptions increased to $11.4 million per individual ($22.8 million for married couples). However, these provisions of the Tax Cuts and Jobs Act (TCJA) will sunset in 2026 and revert back to the much lower, pre-2018 levels unless Congress takes further action.

Following the passage of the TCJA, there was some concern that an individual's estate might be inappropriately taxed with respect to gifts made under the increased exemption amounts if he or she passed away after the amounts reverted to pre-2018 levels in 2026. But on November 22, 2019, the IRS announced that individuals who take advantage of the increased gift and estate tax exemption during this time will not be adversely affected in such a scenario. Thus, individuals who make large gifts while the increased gift tax exclusion is available can do so without concern that they will lose the tax benefit once the exclusion decreases after 2025. This presents a temporary window of opportunity to preserve significant family wealth, and we recommend you consider taking advantage of it while you have the chance.

Your plan should be flexible to adapt to changes in tax law as well as your personal circumstances. A discussion with BNY Mellon may provide you with additional insights and ideas to consider with your other professional advisors.

Asset Allocation Adjustments

Rebalancing, whether by selling assets that are overweighted in the portfolio, purchasing assets in classes that are underweight or simply adjusting future investments to compensate, can keep your portfolio on track to meet its intended goals. This is also an opportunity to offset the tax impact of any realized gains that have been taken this year through tax-loss harvesting, or by harvesting losses in the portfolio (or, in some limited circumstances, realizing gains to offset losses). We review portfolios on a regular basis to determine if rebalancing is necessary and at the end of the year, and we take gains or harvest losses to offset gains as needed.

As always, it is important that your advisory team of wealth manager, CPA and estate attorney work in concert to minimize the government's share of your wealth, especially at this time of year.

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