Year-end Checklist

2020 will be remembered as a year like no other.  A year that started out with a global pandemic and ended with a presidential election.  A year that saw the stock market contract to bear market levels from record highs, only to rebound and set new record highs.  However, with all the unexpected changes around us, one important task remains constant, year-end financial planning.  As always this will help you better organize your financial health and start off the New Year on the right foot.  Here are some key topics to consider addressing.

Gifting strategies

Whether you give to a loved one or to a charitable organization that is close to your heart, ‘tis the season of giving gifts.  If you choose to give a gift to an individual, keep in mind that gifts up to $15,000 per person are allowed under the annual gift tax exclusion.  Consider gifting assets that have the greatest potential for appreciation in order to optimize the tax savings.

Donating to a charity is another good strategy to help reduce taxable income while supporting a worthy cause, especially during these uncertain times.  You should explore various gifting alternatives.  For example, if possible, use appreciated securities instead of cash.  This will help you avoid paying income tax on the built-up capital gain, while at the same time maximizing your charitable deduction.

Also, even though the CARES Act has waived required minimum distributions (RMD’s) for 2020, if you are over 70 ½, you can still do Qualified Charitable Distributions (QCD) from your IRA.  You can donate up to $100,000 to qualified charities.  To avoid taxes, the donation needs to be a direct transfer of funds from your IRA custodian to the qualified charities.  QCD’s are an effective way to meet your current RMD and reduce your future RMD obligation.

Another alternative for charitable gifting would be to set up a donor advised fund (DAF).  A gift to a DAF gives you an immediate income tax deduction and provides you with the flexibility to make immediate or future gifts.  Since the tax deduction is given at the time of donation, a tax-efficient gifting strategy for a DAF is “bunching,” making several years’ worth of contributions in one year.  While in the DAF, the gifts can be invested for tax-free growth potentially making even more money available for future charitable donations.

Review estate planning documents

Have you experienced any life changing events in the last 12 months?  For example, did you get married?  Have a child or a grandchild?  Did you lose a loved one through death or a divorce?  Review and update your estate plan regularly to match your changing goals.  Since a beneficiary designation supersedes who is named in a will or trust, give considerable thought when listing beneficiaries, and promptly update your beneficiary designation forms should your family circumstances change.  Be sure to review the beneficiaries listed on your life insurance policies, brokerage, retirement, and bank accounts.  Also, to help your estate avoid probate be sure to name a contingent beneficiary in case your primary beneficiary passes away.

If you spent your hard-earned money and time to have a trust drawn up, do not let it go unused.  Make sure you fund it by retitling assets, such as real estate holdings, brokerage, and bank accounts in the name of the trust.  Equally as important is naming a successor trustee.  When giving someone the authority, choose someone with good common sense.  Also, consider their level of sophistication and time available after career demands and commitments to their own family.  Finally, make sure you share copies of these essential documents with the people you have asked to help with your estate, including beneficiaries.

Review insurance coverages

To ensure that you have adequate coverages in place and are not paying too much, it is important to reevaluate your insurance policies periodically.  There are various types of insurance most people purchase, the standard being home & auto, health, and life.

Compare your insurance premiums.  Property and casualty insurance rates can fluctuate between competing companies due to crime and high claim rates.  Also, many property and casualty insurance companies offer multipolicy discounts.  Verify with your company if you get a discounted rate to bundle your home and auto policy.

Open enrollment season for health insurance usually starts on November 1.  This is the time of year when insurance companies allow for changes to be made to health insurance policies.  Whether you are retired or working, your healthcare needs are always changing.  You should review your health insurance policy every year.  When reviewing plan offerings from multiple companies, you may discover that other options are more suitable to your needs and budget.

If you own an individual life insurance policy or participate in a group plan, the single most important detail that you need to review is the current primary and contingent beneficiaries.  Also, in order to protect your loved ones, make sure that your current coverage levels are adequate to cover any outstanding liabilities.

As always, Provident Investment Management is here to help.  If we do not have the answer, we will try to help direct you to someone who does.

Dan Krstevski, CFP®