What are Important Estate and Tax Planning Tips to Know?

What are Important Estate and Tax Planning Tips to Know?

Tax season is upon us, which means it is important to consider the tax implications that come with your estate plan. Educating yourself on these topics can benefit you in many ways before the end of the fiscal year. In doing so, consider the following estate and tax planning tips:

Bunching Charitable Gifts for Income Tax Deductions

It can be beneficial to set up a Donor Advised Fund to contribute to if you do not already do so. These contributions can cover years of charitable giving in the future. In doing so, you may be able to itemize your income tax deductions for the year, as a large charitable contribution can allow significant income tax benefits.

Make a Qualified Charitable Distribution From Your IRA Account

If you are at least 70 and a half years old, you must withdraw a minimum from your IRA every year. The required minimum distribution (RMD) is usually withdrawn and taxed as an ordinary income. However, if you do not live on your RMD, you can make a qualified charitable distribution to satisfy the RMD for the year. 

Make Sure You Comply With Your RMD

If you fail to withdraw and pay tax on your full RMD amount, there can be penalties. You may want to consider making a Roth conversion for part of your traditional IRAs. If you are not in a higher income tax bracket, you may benefit from converting part of an existing IRAs to Roth IRAs annually. This can result in certain tax benefits in the future.

Gifts to Your Family Members

Gifts can have several tax effects, including gift tax, estate tax, and income tax. These can be both positive and negative, which is why you need to plan gifts carefully. This is so that you can minimize any negative consequences and maximize the benefits. Possibilities to consider can include taking advantage of the gift tax annual exclusion, contributing to a 529 Plan for children, making tangible gifts, and contributing to an IRA or Roth IRA for children.

Consider Trust Distributions for Individuals With Existing Non-Grantor Trusts

If you have an existing non-grantor trust, you may be able to reduce the impact that income taxes have overall on the trust and its beneficiaries. This can be done by setting up the trust to make distributions to beneficiaries in order to have the income taxed at lower individual rates rather than higher tax rates.

Review Your Estate Plan

Estate plans should be reviewed every three to five years. This ensures it is up to date regarding how your final wishes should be taken care of, how and what people benefit, and the legal structure used to carry out the plan. 

Contact our Firm

If you or a loved one needs assistance creating an estate plan and wish to speak with an experienced attorney, contact the Law Office of Andres D. Gil, PLLC today.

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