Estate Planning and Year-End Preparation: What to Review
Financial Planning
Estate planning is a critical part of year end planning. Learn what to review before year-end, from beneficiary updates to gifting strategies.
You might not need to extensively manage estate planning each year if there have not been any substantial changes. Nevertheless, estate planning remains an important part of year-end preparation because your circumstances may change. Tackling this review gives you a predetermined time to revisit key documents, confirm beneficiary designations, and review any changes in the law or your circumstances that may affect how your assets are handled.
While estate planning is commonly associated with long-term decisions, it also includes ongoing maintenance. Changes in family structure, financial accounts, and applicable laws may affect how an estate plan functions. Reviewing these elements before the end of the year allows time to make updates and to confirm that your records are current.
Reviewing Core Estate Planning Documents
Most estate plans are built around a set of core legal documents. These may include a will, trust documents (if applicable), a durable power of attorney, and a healthcare directive. Each document serves a different purpose, and together they provide a framework for how decisions may be handled if an individual becomes unable to act or passes away.
A will generally outlines how assets are distributed and may name guardians for minor children. Trust documents, when used, may provide additional structure for managing assets during life or after death. Powers of attorney allow a designated individual to act on financial or legal matters, while healthcare directives address medical decisions.
These documents may need to be updated over time. Changes such as marriage, divorce, the birth of a child, or the death of a named beneficiary may affect how an estate plan operates. State laws may also change, which may affect how certain provisions are interpreted. Periodic review helps you double-check that your documents remain aligned with current legal requirements.
Confirming Beneficiary Designations
Beneficiary designations are a key part of estate planning and are often associated with retirement accounts, life insurance policies, and certain financial accounts. Beneficiary designations generally take precedence over instructions in a will for these types of accounts¹. The IRS has specific rules about beneficiaries that must be considered2. Because of this, it is important to review beneficiary designations regularly. If a designation is outdated, the asset may pass to a person who you no longer intend to receive it. This may occur if accounts are not updated after major life events.
Take some time to review account records and confirm that all beneficiary information is current. This includes checking both primary and contingent beneficiaries, as well as ensuring that the contact information for them is accurate.
Understanding the Annual Gift Exclusion
The annual gift exclusion allows individuals to transfer a certain amount of assets to another person each year without triggering federal gift tax reporting requirements. The IRS sets this limit and adjusts it periodically3. Gifts made within the annual exclusion generally do not affect an individual’s lifetime gift and estate tax exemption. This makes gifting a common part of estate planning for some individuals.
Because the exclusion applies on a calendar-year basis, gifts must be completed by December 31 to count for that year.
Taking Inventory of Assets
Having an up-to-date inventory of your assets is a key part of estate planning. This includes identifying financial accounts, real estate, personal property, and other holdings. This process may also include reviewing how assets are titled. Ownership structure could affect how assets are transferred, whether through a will, trust, or other designation. For example, jointly-owned property may pass directly to the surviving owner, depending on how the account or title is structured.
Now is a good time to consolidate records, consult with a financial professional, and update your account information.
Addressing Digital Assets
Digital assets have become an increasingly important part of estate planning. These may include online financial accounts, email accounts, cloud storage, and other digital records. Including digital assets in an estate plan may involve creating a secure record of account information and providing instructions for access. Some states have adopted laws that address how digital assets may be managed after death, which may affect estate planning considerations.
Reviewing Powers of Attorney and Healthcare Directives
Powers of attorney and healthcare directives might be overlooked, yet remain important components of an estate plan. These documents allow designated individuals to make decisions on behalf of another person under specific circumstances. A financial power of attorney may allow someone to manage accounts, pay bills, or handle legal matters if the original account holder is unable to do so. A healthcare directive outlines preferences for medical treatment and may designate someone to make healthcare decisions for a person who is not able to make them.
These documents should be reviewed periodically to confirm that the named individuals are still appropriate for these roles. Changes in relationships or location may affect whether a designated person is able to serve in this capacity.
Coordinating Estate Planning with Other Financial Areas
Estate planning may influence other areas of financial planning, including tax considerations, retirement accounts, and charitable giving. For example, beneficiary designations on retirement accounts may affect how those assets are distributed and taxed. Similarly, charitable giving strategies may be included in estate plans, either through direct bequests or through structured arrangements. Reviewing these details helps manage elements of your financial plan.
Organizing and Storing Documents
Maintaining organized and accessible estate planning documents is an important part of preparation. This includes keeping copies of wills, trusts, and other legal documents in a secure location and ensuring that trusted people know where to find them. In addition to physical documents, digital copies may also be maintained. It's important to store these records securely and safeguard sensitive information.
Working with a Financial Professional
Estate planning often involves legal, financial, and tax considerations. Working with a financial professional may support a more complete review of these areas. Scheduling a review early allows time to discuss any changes in circumstances, evaluate existing documents, and identify any updates you may need to make before year-end.
Conclusion
Estate planning is an ongoing process that benefits from periodic review. Give yourself a structured time to revisit core documents, confirm beneficiary designations, and update records before the end of the year. By addressing these elements with a financial professional, you may manage your estate plans to reflect your current circumstances and have a chance to align them with all applicable rules and requirements.
Important Disclosures:
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #1155965-03
Footnotes
1 Beneficiary Designation vs Will - What You Need to Know https://trustandwill.com/learn/beneficiary-designation-vs-will
2 Retirement topics - Beneficiary https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
3 Gift Tax https://www.irs.gov/newsroom/estate-and-gift-tax-faq
