THE BLOG
12/04/2014 03:59 pm ET Updated Feb 02, 2015

Year-End Wealth Planning Checklist

With so few hours in the day, I often find myself making a list, checking off my "to-do's," and then making another. Our clients' lives are also busy, and so I like to send checklists from time to time to keep planning and investments on track.

The following is a year-end checklist to save you angst and remorse come tax time:

1. Year-end gifting: U.S. investors can give away $5.34 million during their lifetimes or at death (that figure will be $5.43 million in 2015), and exclude it from federal estate and gift taxes. However, over and above that, on an annual basis one can gift $14,000 to any beneficiary. This amount can be given outright, in trust, in a college savings plan or in the form of premiums paid to benefit someone. This annual gift exclusion amount must be given in the current tax year. "Use it or lose it"--as with most good things, this allowance is fleeting, with no rollovers to successive years.

Tuition and healthcare expenses, if directly paid to the institution, do not count against the $14,000 gift limit. There are many other nuances, including discounting techniques to enable a larger gift, that an experienced wealth manager or planner should be able to carefully explain.

2. Tax mitigation: Unless you buy and hold securities for a lifetime, turnover in portfolios--and thus recognition of capital gains--is bound to occur. Now is the time for wealth managers to assess the potential impact of those realized gains and look for unrealized losses to crystallize. Any security (whether a stock, bond, ETF or fund) sold at a loss cannot be repurchased for 31 days - to avoid triggering the Wash Sale Rule, in which the loss is nullified - but we may buy a different security for that period, or swap into another permanently.

3. Funding retirement plans: Although the IRS permits investors to fund some plans up until the day taxes are filed, contributions to employer-sponsored plans like 401(k)'s are deducted from paychecks. As the year draws to a close, if you have not deducted the maximum, and can afford to do so, contact your HR department and increase the deduction. This is an interest-free loan from the government and the accumulation is tax-deferred.

4. College savings plans: Another interest-free loan is the 529 college savings plan, which must be used for undergraduate or graduate university education. Some states offer tax credits for part of the contribution, and the tax-free compounding of investments can be critical to offsetting a massive school bill down the line. Another nice advantage of these plans is that the donor owns the plan, and thus can change the beneficiary, even to himself or herself, should there be a need or excess funds.

5. Philanthropy: This is definitely the season for fundraising dinners, but also a time to establish or contribute to charitable funds and foundations. There are pros and cons of each, and an experienced planner or wealth manager should be able to articulate them. Advanced charitable giving involves creating a philanthropic plan that outlines the mission statement, governance and grant-making parameters of a family or entity's intentions. This happens to be my favorite module to implement with our clients, as it reflects the heart of their emotions, beliefs and core values.

Checkbook philanthropy is not ideal. It is more efficient to gift appreciated securities, rather than cash, as the charity receives the fully-appreciated value, the donor receives a tax credit for the fair market value (only if one uses long-term appreciated securities) and there is no recognition of a capital gain. If the charity to which you are giving cannot receive securities, a donor-advised (charitable) fund or foundation will need to receive the gift, sell it and make a grant of cash.

Every year I blow out candles on my birthday cake, I wish for more empathy, compassion and time to begin and complete the tasks I undertake and to enjoy the people in my life. However, regarding the latter, every day contains the same number of seconds, minutes and hours. So, I figure I need to work smarter, not harder, and thus my daily trick is making lists.

We all get busy and need a nudge from time to time. As we come to the end of 2014, and enjoy the hours with family and friends, let's resolve to check off these year-end items, and begin January with the satisfaction and knowledge that we remembered those last few critical things on our list.

Happy holidays to all.

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