Corliss Law Group Estate Planning Law Corporation: Time to check the list for financial and estate planning goals

It’s time to make a list and check it twice — not by Santa, but for financial and estate planning goals.

“There’s nothing magic about reviewing goals at year end, but it is a good time to refocus people on their financial goals,” said Michael Joyce, co-founder and president of JoycePayne Partners, a Richmond-based financial planning firm.

“People have been working hard all year, and they are more focused on the day to day, not the big picture, long-term goals,” he said.

Joyce recommends that consumers make sure they have made beneficiary designations on their retirement accounts and 401(k) plans, that they double-check the accuracy of their wills and that they don’t overlook long-term disability coverage.

It’s also important to consider tax consequences. “In addition to looking at goals, we try at year end to look at strategies for reducing taxes.”

L. Michael Gracik Jr., managing partner at Keiter, a Henrico County-based accounting firm, said year’s end is a good time to review estate planning documents in light of changes to the estate tax laws.

He noted two changes resulting from the American Tax Payer Relief Act of 2012:

• The lifetime estate and gift tax exemption of $5 million per person — money that would be free of estate and gift taxes — was made permanent. The exemption was indexed for inflation, resulting in an exemption of $5.25 million for 2013 and $5.34 million for 2014.

The $5 million exemption was set to expire and revert to $1 million this year.

“Many folks had their estate planning documents drafted when exemption amounts were much lower, say, for example, $2 million,” Gracik said. “Their documents may refer to the old exemption amounts and may need to be changed to accomplish the intended purpose in light of the new amounts.”

• The portability of the exemption amount between spouses was made permanent.

Consider, for example, a couple where one spouse has $2 million in assets and the other has $7 million. If the spouse with assets of $2 million died first, under the prior law, $2 million would have been the extent of the exemption, not $5 million, and the extra $3 million of unused exemptions would have been lost.

With portability, the executor could pass $3 million in unused exemptions to the surviving spouse. The surviving spouse’s exemption then becomes $8 million, instead of $5 million. As a result, all $7 million in assets could pass to the next generation without any estate tax.

“With proper planning, a married couple can pass on assets of $10.5 million to their heirs free and clear of estate tax,” Gracik said.

“Everyone needs to revisit estate planning documents to make sure they still make sense.”

It’s also time to review annual exclusion gifts, Gracik said.

The maximum annual amount that a donor can give tax free to any one person is $14,000. There is no carry-over of this annual exclusion from one year to the next.

“People need to decide before the end of the year whether they need to make additional gifts to use up the exclusion,” he said.

Gracik added that a 529 college education savings program is one of the best ways to save for a child’s education. It can be the avenue for the annual tax-free gift up to $14,000.

A married couple effectively gets double the annual exclusion. A married couple can gift $28,000 to an individual before having to touch the lifetime exemption for either of them.

Another new law that took effect this year is the net investment income tax, a 3.8 percent surtax on investment income of individuals, estates and trust.

The tax is part of the Affordable Care Act, enacted to help pay for health care changes.

It affects single people with gross incomes of more than $200,000 and married couples filing jointly with gross incomes of more than $250,000. It also affects some small businesses, people who invest in real estate and people who rely on income from trusts.

Trusts have lower thresholds than individuals for the 3.8 percent tax to kick in.

A trust will pay a 3.8 percent tax on any income greater than $11,650 a year in addition to a 20 percent capital-gains tax if income is generated from the sale of an asset such as stock.

“It’s important to take a look at where you stand with capital gains and losses,” Gracik said. “Some people may want to take losses before the end of the year to reduce their exposure to the net investment income tax.”

The end of the year also is time to get a handle on investment expenses, such as investment interest and state income taxes on investment income, because these expenses can reduce exposure to the tax, Gracik said.

Finally, this is the time of year to review investment portfolios.

“We’ve seen a big run-up in the stock market in 2013,” Gracik said. “It’s a good idea not to get complacent.”