I sincerely hope, for your sake, you’re at least 75 percent of the way done with your Christmas shopping by now. For those of you who aren’t – godspeed.
Because as the holiday season is drawing to a close, it’s time to start shifting your attention – less to holiday fun (or insanity – whichever you’re currently experiencing) and more to your 2025 financial situation.
Which brings me to an update that could really affect you next year: The U.S. Federal Reserve will most likely cut interest rates by 0.25 percent at their December meeting. What does this mean for you? If you’ve been thinking about buying a house or a car, 2025 could be your year. There are more things this affects that we’ll keep you updated on in the coming year.
But before we fully move onto 2025 talk, a not-so-gentle reminder if you’re 73+: Make sure to take your required minimum distributions (RMDs) by December 31 (unless you turned 73 this year – your deadline is April 1, 2025). The penalties here can mount up to a 25 percent excise tax on what you don’t withdraw.
The rest of my writing today is aimed at other things you need to think about before you reach your golden years – aka: estate planning – and why it’s hugely important (not just for the boomers).
Because the truth is, how well (or how poorly) you create your estate plan impacts your loved ones and your community long after you’re gone. Ultimately, you’re doing this for them.
And, as the faithful Harris County tax pro in your corner, of course, I have to divulge the tax benefits involved (of which there are actually quite a few).
But Really: Why Is Estate Planning Important for Houston Successors
“You can’t go back and change the beginning, but you can start where you are and change the ending.” – C.S. Lewis
An estate plan… you can just put that off until later, right?
Well, as the voice of tax reason in your life – no, you cannot.
I know it’s tempting to procrastinate on estate planning (at least for the 43 percent of you who admitted it).
If you take one thing away from my writing today, let it be some straight talk that motivates you to take action:
– Why is estate planning important – Reason #1:
Your clear instructions minimize conflict.
(A helpful rule that applies to more than finances).
If you don’t leave behind a solid estate plan, it’s up to your family to sort issues out – while they’re already dealing with emotional distress. Who-gets-what disputes can quickly turn into painful family tension and even intense legal warfare.
– Why is estate planning important – Reason #2:
It is in your power to protect your loved ones legally.
If you don’t do this, who else can they trust?
Ensure legal ownership and distribution of assets. An estate plan guarantees clear instructions (that state intestacy laws can’t argue with).
Protect against probate – i.e. the court-supervised process of validating a will and distributing assets. It’s typically lengthy and expensive and exposes your already-sensitive family issues to public scrutiny. And, as an added bonus – possible financial loss for your loved ones.
Minimize challenges. When you put your wishes in writing, they’re pretty hard to argue with. You can even include “no-contest clauses” (if your state law allows) which will actually disinherit anyone who contests your wishes (without valid cause, of course).
Provide for minor children and dependents with guardianship provisions decided by you, NOT the court. Trusts can also protect minors’ assets from mismanagement or premature access until they’re of age.
Keep creditors and legal claims at bay. Placing your assets in irrevocable trusts helps fend off creditors, lawsuits, and divorce settlements (oh my) – protections depend on timing and structure of the trust.
– Why is estate planning important – Reason #3:
It’s (a big part of) how you leave your legacy.
Because your wealth lives on long after you – and with it, you can enlarge the impact you make.
The best method is to use charitable remainder trusts (CRTs) or charitable lead trusts (CLTs). CRTs let you pay income to beneficiaries during their lifetime and put the rest in charity, while CLTs do the reverse – donating to a charity for a set period before transferring the rest to your heirs.
And you don’t just have to support charities – you can donate to scholarships, grants, or community programs by creating an endowment. There are really some pretty great options for giving to what you actually care about.
– Why is estate planning important – Reason #4:
It’s (undeniably) tax-smart.
You didn’t think I’d let you off easy here, did you? But I’ll keep my list brief:
- Lifetime gifting. You can make annual gifts of up to 18k per recipient in 2024 without it counting toward your lifetime gift and estate tax exclusion, which is set at 13.6 million (rising to 13.9 million in 2025).
- Charitable giving included in your estate plan is fully deductible from your taxable estate, and using a CRT or CLT knocks down your taxable estate.
- Trusts, like irrevocable or generation-skipping trusts, protect your wealth from estate taxes and the generation-skipping transfer tax.
- Capital gains tax. The value of your assets reverts to the market price when you pass (known as a “step-up”), which knocks down capital gains taxes.
Hopefully, by now, you’re not still asking, “Why is estate planning important?” But instead, “How do I get started?”
Keep it up. And also ask these:
- What are your assets? Do you have real estate, bank accounts, investments, retirement accounts, life insurance policies, or personal property (like jewelry or vehicles)?
- What are your liabilities (aka debts)? This can include mortgages, loans, and credit card balances.
- What are your goals? Who (or what) do you want your assets to go to?
Now, these steps are just to help get you off the ground – there’s a lot more involved in creating an effective estate plan that puts your family in the best position (legally and emotionally) and gives you a simultaneous tax boost. Of course, my Houston team and I are happy to help you find the way forward (specifically on the tax-benefits side of things):
calendly.com/postalplustax
To protecting your loved ones,
Dominic Nguyen