2022 Year End Letter from Strauss Attorneys

We are coming to the end of another year!
It has been, yet again, a roller-coaster of a ride. This year marked the apparent end of Covid, as well as The Godfather’s fiftieth anniversary. And, of course, we all are feeling the pinch of rising inflation rates. For estate planners, however, one thing has remained constant. In 2022 there were no substantial changes to the applicable tax laws. While legislation can change at any time, and estate plans must remain flexible to adjust to those changes, this end-of-year planning newsletter will focus more on fundamentals. But first, we want to tell you about a few exciting new client-centered programs that we started in 2022.

New Programs, New Opportunities

Strauss Attorneys is excited to announce two new programs: EstateCare and Corporate Shield. Our estate administration team has also been hard at work developing a new process for our clients that will take a lot of uncertainty out of estate and trust administration.

Our new EstateCare Membership program allows us to maintain lifelong relationships with our clients so we can address changes in the law, your family, your assets, and your goals and objectives on a proactive basis and truly be there for your family when they would need us most – after incapacity or death. The Membership includes numerous benefits and services, including an annual review, ongoing asset coordination services, discounts on plan updates and administration services, and many others.

Our new Corporate Shield Service is designed to assist business owners with maintaining the corporate formalities of the business to avoid piercing the corporate veil. It includes maintaining your registered agent (in any state necessary), preparing annual minutes, filing annual reports, and providing legal updates, checklists, and questionnaires to assist with managing your business.

Estate Administration Process: Our estate administration team has implemented a seven-step roadmap for our clients to make sure that they know exactly where they are in the estate and trust administration process. There are many benefits to the roadmap. For the client, we will be able to tell them exactly where they are along the road, removing any uncertainty as to the state of the administration. For financial advisors and other professionals, we put your clients at ease, allowing you to address their concerns that you are trained for. The roadmap is:

1. Overview: We begin by meeting with the client to provide an overview of the whole process.

2. Legal: We review the will and/or Trust and go over the myriad of notices and documents that must be filed with the court.

3. Creditors: We address with the client issues related to creditors and the type of notice that needs to be provided.

4. Assets: Here we discuss the gathering of assets, determining the date of death value, and whether the assets and the portfolio need to be adjusted to meet the needs of the estate and beneficiaries.

5. Taxes: At this stage, we go over the reporting and payment of taxes.

6. Distributions: This is the step everyone waits for, although several issues need to be addressed prior to making the distributions, from disclaimers and the preparation of accountings to the drafting of Receipt, Release, and Refunding Agreements.

7. Wrap-Up: At this final stage we address any outstanding issues or questions as well as discuss any estate, tax, and financial opportunities that may be available to the client.

End Of Year Considerations

Charitable Contributions

While many charitable planning options are not ideal in the current environment, there are a few strategies to highlight. First, individuals who are 70 ½ may want to make a qualified charitable distribution to a qualified charitable organization (QCO). The IRS allows individuals to make a transfer of up to $100,000 from that individual’s retirement account to a QCO and count that toward the required minimum distribution, without adding to their annual taxable income. It could also allow you to avoid the Medicare surtax on net investment income.

Another strategy that is gaining consideration is the use of Charitable Remainder Trusts in a higher interest-rate environment. The higher interest rates make the charitable deduction more attractive. We would be happy to run illustrations for you if you are planning to sell appreciated assets or have taxable income that you want to offset by a charitable deduction.

You can also “bunch” your charitable contributions that you have made over several years into one year taking advantage of a substantial income tax deduction.

Taking Stock Of Your Estate And Gift Tax Exposure

An easy way to reduce your estate and gift tax exposure before year-end is to use your annual gift exclusion amount. This allows individuals (or married couples) to make gifts of up to $16,000 ($32,000 for married couples) to as many individuals as they want without it counting against your lifetime federal estate and gift tax exemption. Importantly, 2022 saw the first increase in this amount since 2018, when it went from $15,000 to $16,000. In 2023, it will be $17,000.

For those with more significant assets, it is important to know that in 2022 the estate and gift tax exemption amount rose from $11.7 million to $12.06 million; in 2023 that will increase to $12.92 million. This amount will continue to increase with inflation until 2026, when the exemption amount will decrease to $5 million (indexed for inflation). As of January 1, 2026, if you have not utilized the increased exemption amount, it will be lost (under current law). So, before 2026, it’s a use-it-or-lose-it situation (unless you want to take the chance that the law will be extended at the higher exemption rates, but this would take Congress and the President passing new legislation).

Other strategies in this category include making contributions to 529 plans, gifting assets that have decreased in value but are expected to increase as the market rebounds, and, if possible, swapping assets out of a trust that has a low basis for high basis assets to take advantage of a step-up in basis at the individual’s death.

Income Tax Strategies

Your portfolio may have some underperforming assets. You can purposefully sell them at a loss to offset some of your capital gains realized during the year (the “tax-loss harvesting” strategy). In a year like 2022 where the markets swung rather violently, there may have been tax-loss harvesting that occurred earlier in the year. In that situation, it is important to coordinate your year-end tax-loss harvesting with your earlier realized losses. There are landmines in some of these strategies (like the “wash sale rule”), so you would need to be careful and consult a professional.

Consider contributing to your retirement plan and Health Savings Accounts (HSA). In 2022, the maximum amount you can contribute to a 401(k) is $20,500 (plus an additional $6,500 if over age of 50) and $6,000 to an IRA (plus an additional $1,000 if over the age of 50). For an HSA, you can contribute up to $7,300 for family coverage, or $3,650 for individual coverage (with an additional $1,000 allowed if over the age of 55). Both strategies may not only help your income tax situation but could bolster your overall financial plan.

Conclusion

So, while this year has seen a lot of volatility, it has also had some stability and new opportunities. Here at Strauss Attorneys, we have and will continue to weather the storm, offering excellent service to our clients. We look forward to working with you all in 2023.