Year-End Financial Planning Guide for Families: Key Considerations for 2024

As we approach year end, this guide highlights essential financial considerations, offering actionable steps and practical advice to help secure your family’s financial well-being.

Smart Tax Planning Strategies

Year-end tax planning can yield substantial savings for families who take a proactive approach.

  • Charitable giving can play a crucial role in tax planning. Consider a Donor Advised Fund (DAF) to bunch multiple years’ worth of charitable contributions into a single tax year to maximize the benefit of itemizing deductions.
  • If you are over 70½, qualified charitable distributions (QCDs) from IRAs of up to $105,000 per individual or $210,00 for a married couple filing jointly can satisfy required minimum distributions (RMDs) while providing tax advantages.
  • Consider a Roth Conversion to convert IRA dollars into Roth dollars which will grow tax free going forward.

Estate Planning for Family Security

Estate planning extends far beyond a simple will creation. A comprehensive estate plan ensures your assets are distributed according to your wishes while minimizing tax implications for your heirs.

  • Review and update wills and other directives.
  • Check beneficiary designations on retirement accounts and life insurance, including contingent beneficiaries.
  • Consider establishing or updating trusts (especially considering state estate taxes).
  • Review powers of attorney and healthcare directives.
  • Evaluate gifting strategies for tax efficiency.
  • Consider charitable giving vehicles.

Maximizing Retirement Security

Now is the time to review your contribution levels to workplace retirement plans and Individual Retirement Accounts (IRAs). In November, the IRS announced a significant changes for 2025, including raising the limits for catch up contributions for workers age 60 to 63.

  • If you are not maxing out your 401(k), at a minimum, ensure you are contributing enough to receive your employer’s maximum matching contribution.
  • If you have set a fixed contribution amount, review and adjust your contributions for 2025 to ensure you reach new annual limits.
    • 401(k): $23,500 ($31,000 for those 50 and older and $34,750 for those age 60 to 63)
    • IRA: $7,000 ($8,000 for those 50 and older)
    • Consider making these as Roth contributions if your future income/taxes will be higher.
  • Review investment allocations to ensure they align with your risk tolerance and timeline.

Secure Your Family’s Future Through Insurance

Insurance coverage forms a crucial part of your family’s financial safety net. The end of the year presents an ideal time to review your insurance policies and ensure they still align with your family’s needs.

  • Life insurance coverage should reflect your current family situation, including any changes in dependents, income, or debt obligations.
  • Health insurance decisions take on particular importance during open enrollment periods. Consider whether your current health plan still offers the most cost-effective coverage for your family’s medical needs.
  • Consider maxing out contributions to a tax-efficient HSA plan if you are eligible ($4,300 for an individual or $8,550 for a family in 2025).
  • Often overlooked, long-term disability insurance, deserves consideration as it protects your income should you become unable to work.

Strategic Debt Management

In today’s dynamic interest rate environment, smart debt management can significantly impact your family’s financial health.

  • Review all outstanding debts, from mortgages to credit cards, for opportunities to reduce interest costs through refinancing or consolidation.
  • If you have high levels of consumer debt, consider creating a structured debt repayment strategy that balances aggressive debt reduction with other financial priorities.
  • Mortgage holders should evaluate whether current rates and terms still serve their best interests.

Remember that not all debt is created equal – focus first on eliminating high-interest consumer debt while maintaining strategic use of lower-cost debt that might offer tax advantages.

Education Planning using 529 accounts

Saving for education can help prepare bright young minds for a fulfilling future career. If you plan to help fund the cost of a university degree, consider the following:

  • Review contribution limits and state tax benefits.
  • The 2024 Federal Gift Tax Exemption is $18k per giver, per receiver (a couple can gift $36k to a child’s 529 plan). This increases to $19k in 2025.
  • Consider front-loading 529 plan contributions (up to five years-worth all at once). Please consult with your tax accountant on how to report these contributions.
  • Evaluate investment allocations based on children’s ages.
  • Explore options for unused 529 funds, including transfers to siblings or a Roth IRA.

Emergency Fund Assessment

A cornerstone of any sound financial strategy remains a robust emergency fund. While the traditional advice of saving three to six months of essential expenses holds true, today’s higher interest rates present a nice opportunity. High-yield savings accounts offer the opportunity to earn meaningful returns while maintaining liquidity.

Family Financial Communication

An open dialogue about family finances builds stronger financial futures for the next generation. Set aside time for family financial discussions, adapting the conversation to include children at age-appropriate levels. These discussions can cover everything from daily spending decisions to long-term financial goals.

  • Schedule quarterly or semi-annual family budget reviews.
  • Use age-appropriate financial language for children:
    • Ages 5-10: Basic saving and spending concepts, including giving
    • Ages 11-15: Introduction to investing and compound interest
    • Ages 16+: Credit, college planning, Estate planning basics
  • Discuss family values and money relationships.
  • Plan family philanthropy initiatives.
  • Create financial responsibility transition plans for teens.
  • Review family business succession planning if applicable.

Take Action

Successful financial planning requires taking concrete steps toward your goals. Begin by making any necessary year-end contributions or adjustments to investment accounts. Update important documents and beneficiary designations. Set specific, measurable financial goals for the upcoming year. Finally, consider where Crestwood’s professional financial guidance might help you navigate complex financial decisions.

Remember, financial planning is an ongoing journey, not a destination. Regular reviews and adjustments will help ensure your family remains on track to meet both immediate needs and long-term aspirations.

This document is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal advice, and this document should not be construed as containing legal advice. For legal advice, consult with a licensed attorney. This document should not be construed as containing tax advice. For tax advice, consult with your tax adviser.

Director and Wealth Manager Discusses Emerging Trends in Philanthropy with Crain Currency

What’s your giving strategy for 2025? The new year signals fresh opportunities to give back—are you prepared?

Director and Wealth Manager Luke B. Neumann, recently spoke with Crain Currency about emerging trends in charitable giving, including the impact of potential tax changes and how donor-advised funds (DAFs) and qualified charitable distributions (QCDs) are shaping the future of philanthropy.

Read the full article to learn more about these developments and how they may affect the future of giving by clicking here

Little Learners, Big Budgets: Empowering Young Minds with Financial Wisdom

The importance of Financial Education in Wealth Transfer

Creating generational wealth involves more than just passing on financial assets. It’s about preparing the next generation to nurture their legacy and focus on managing and growing wealth responsibly. Focusing efforts on financial education at an early age is key to setting younger generations up for success.

One of the biggest challenges is educating the next generation on important issues like financial literacy, self-discipline, and wealth preservation. How do families start this conversation with their heirs? Will they understand these concepts at a young age? While these conversations with the next generation can be difficult, there are avenues to facilitate productive discussions.

Interactive Engagement to Ignite Young Imaginations

There are many resources such as Mint, Smart About Money, Monarch and Greenlight, that teach young children about financial literacy and investment concepts through interactive engagement. With technological advancements, introducing them to online tools can help automate and simplify their financial management. Many programs offer family-friendly curricula, multimedia learning centers, games, and budgeting tools, making financial education both enjoyable and accessible.

Incorporate philanthropic endeavors into your conversation. What are their hobbies and how can this tie into charity? With the holiday season approaching, this could be an opportune time to bring up how they may give thanks as part of a philanthropic approach.

Transforming Financial Responsibility into Opportunity

Infusing relevance, excitement, and collaboration into discussions with your children can ease the weight of financial conversations. Reframing specific conversations to empower them will allow for greater results. For example, rather than saying “you need to learn about budgeting so you can save more”, you can try “what would you like to buy so we can talk about saving to pursue your goal”. This type of collaboration will induce trust and relationship building, while discussing the importance of being financially prudent. Share your childhood stories with them. This can provide them with a sense of connection and understanding on your accomplishments.

Building Healthy Financial Habits

Building best practices and habits as early as possible will make an impact. Prioritize saving by creating a goal. Whether it’s saving for that pair of sneakers or saving $10 per week for an emergency fund. When they start working, prioritize saving by automatically setting aside a portion of their income for savings before allocating funds to other expenses. Prioritize participation in employer-sponsored retirement plans, such as 401(k) plans, especially if the employer offers a matching contribution. Maximizing employer matches provides a significant boost to retirement savings. Demonstrating the effects of compounding at an early age can be eye-opening, and instilling sound financial practices and habits from an early age can make a lasting difference.

Conclusion: Preparing the Next Generation for Success

Connecting your heirs with financial advisors opens the door to meaningful dialogue about money management. By involving professionals, young children can gain insights and learn directly from experts, making financial concepts more relatable and understandable. Reach out to your Crestwood Team to explore ways to engage the next generation effectively.

Managing Director and Wealth Strategist Explores Critical QSBS Planning Strategies with Tax Notes

“Planning opportunities will most certainly be missed if people are unaware of Qualified Small Business Stock (QSBS),” says Managing Director and Wealth Strategist Katherine M. Sheehan, J.D., AEP®, in her recent piece on Tax Notes.

Katie delves into the intricacies of QSBS and outlines key estate, gift and income tax planning opportunities that advisors should know to help clients maximize the benefits of QSBS.

Click here to read the full article.

Director and Wealth Manager Discusses Back-to-School Financial Strategies with InvestmentNews

Summer is coming to an end, which means it’s time for students to head back to school. At Crestwood, we aim to help our clients plan for their children’s future – including how to finance their education.

Crestwood Director and Wealth Manager Billy Spencer, CFP®, CFT-I™, FBS® recently spoke with InvestmentNews on financial strategies and tips we share with clients to help prepare for back-to-school season.

“With the resources that you have, whether that’s through student loans, stipend from parents or earnings from the child working, they can use that awareness around where the money’s going to allocate it well and have it aligned with what they value and what their needs are,” he said.

Click here to read the full article.

Watching the Sunset: Potential Tax Cuts and Jobs Act Planning Considerations

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly changed the U.S. tax code, impacting individuals and businesses. As we approach the potential sunset of many provisions at the end of 2025, high net-worth families must prepare for potential shifts back to pre-TCJA rules. The TCJA lowered income tax rates, doubled the estate tax exemption, and altered various deductions and credits. The expiration of these provisions would revert to higher tax rates and a lower estate tax exemption. In light of this, these areas are worth considering:

Tax rates.  First and foremost, the potential increase in individual income tax rates impacts every taxpayer. The TCJA reduced the top marginal tax rate from 39.6% to 37%. High-earning individuals may need to consider strategies such as accelerating income, utilizing Roth conversions, or harvesting capital gains at lower tax rates.

Deductions.  Changes to the state and local tax (SALT) deduction and personal exemptions would also impact tax planning. The TCJA capped the SALT deduction at $10,000, significantly impacting taxpayers in high-tax states. If this cap is lifted, taxpayers in those states may benefit from increased deductions. Additionally, the return of personal exemptions, eliminated under the TCJA, could provide further tax relief.

Corporate tax rate and qualified business income.  Business owners should prepare for changes in corporate tax rates and deductions. The TCJA reduced the corporate tax rate from 35% to 21%. Pass-through entities that benefited from a 20% deduction on qualified business income (QBI) may also see this deduction disappear.

Estate tax exemptions.  The estate tax exemption stands at $13.61 million per individual in 2024, allowing couples to shield nearly $27.22 million from estate taxes. If the TCJA provisions expire, this exemption would drop to approximately $5 million per individual, adjusted for inflation, to roughly $7 million per person. This would result in more estates subject to the 40% federal tax. High net-worth families should consider strategies such as gifting, utilizing trusts, and other wealth transfer techniques to minimize the potential tax burden on their heirs.

The possible sunset of the TCJA presents a complex landscape for high-net-worth clients. Proactive financial planning will help navigate changes in tax laws. Contact your Crestwood Advisors team today to discuss how potential changes might affect you and to develop a plan tailored to your circumstances.

Source: Henry-Moreland, B. (2024). TCJA Sunset: Planning For Changes In Marginal Tax Rates. Nerd’s Eye View | Kitces.com. https://www.kitces.com/blog/tax-cut-and-jobs-act-tcja-sunset-marginal-tax-rates-personal-exemption-phaseout-pease-limitation-qbi-deduction/

The above is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal or tax advice, and this document should not be construed as containing legal or tax advice. For legal or tax advice, consult with a licensed attorney or accountant.

Transform Your Philanthropy: Charitable Giving Strategies for 2024

By being thoughtful and strategic with your philanthropy, individuals can achieve their charitable goals while also being tax efficient and fostering future financial growth. Here, we explore effective charitable giving strategies and highlight how Crestwood Advisors can support your journey towards impactful giving.

Be strategic with your giving to maximize tax benefits

Donating appreciated securities allows you to avoid capital gains taxes while securing a charitable deduction for the asset’s full market value. Additionally, contributions to qualified charitable organizations are deductible from income taxes, providing immediate financial benefits. Collaborating with your Crestwood advisor can ensure you are giving as tax efficiently as possible.

Leveraging Donor-Advised Funds (DAFs)

When donating cash, securities, cryptocurrency or other assets into a Donor-Advised Funds (DAFs), donors receive an immediate tax deduction but can make grants to charities over time. One key advantage of DAFs is flexibility: donors can contribute in one year and then decide on the timing of gifts across one or more years. Additionally, unused funds within the DAF can be invested, maximizing the impact of your charitable giving. Administrative ease (no more keeping track of all those individual donations throughout the year!) and potential for growth make DAFs a powerful tool for integrating philanthropy into long-term financial plans.

Planning for Legacy Giving

Legacy giving, or planned giving, involves integrating charitable bequests into estate plans, ensuring your philanthropic goals endure beyond your lifetime. By designating a portion of your estate to charitable organizations, you can leave a lasting impact while potentially reducing estate taxes. Legacy giving ensures your charitable vision continues to benefit future generations.

Implementing Charitable Trusts

Charitable trusts, such as Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs), offer structured approaches to philanthropy while delivering significant tax benefits. A CRT provides an income stream over a specified period, with the remainder distributing to charity upon the beneficiary’s death. Conversely, a CLT allocates income to charity for a set term, with remaining assets eventually returning to you or your beneficiaries. These trusts are ideal for aligning charitable intentions with personal financial planning goals in 2024.

Exploring Qualified Charitable Distributions (QCDs)

Individuals over 70½ years old can donate up to $100,000 directly from their IRAs to qualified charities without incurring income taxes on the distributions through Qualified Charitable Distributions (QCDs). This strategy not only satisfies required minimum distributions (RMDs) but also significant tax benefits while supporting charitable causes directly.

Ready to transform your philanthropic impact in 2024?

Contact your team at Crestwood Advisors today to discuss how we can help you develop a charitable giving plan that aligns with your financial goals and maximizes your philanthropic impact.

Gifting Strategies to Manage Unrealized Gains: Downstreaming and Upstreaming

Navigating the complexities of wealth management often involves strategic moves to optimize tax efficiency. Two such strategies, Downstreaming and Upstreaming, are approaches to managing unrealized gains by moving securities between generations.

Downstreaming: Passing unrealized gains to someone in a lower tax bracket

Gifting stocks with unrealized gains to people in lower tax brackets can be a thoughtful and potentially tax-efficient way to share wealth. The cost basis and acquisition date of the stock will carry over to the recipient. They will not owe taxes at the time of the gift but will owe taxes at the time of sale. However, since the recipient is in a lower bracket, the amount of taxes due could be lower.

For example, consider the hypothetical case of the Clampett family. They have amassed a large amount of wealth in the family’s oil business and live in Beverly Hills, California. The patriarch, Jed, has a combined Federal and State long term capital gain tax rate of 33%. Jed has a large amount of Clampett Oil stock with a zero-cost basis that currently has a market value of $100 per share.

He wants to support his nephew Jethro and his wife by giving them each an annual gift of $18,000. They live in Florida, have a household income of $80,000 and two children. Thus, an extra $36,000 annually would be a significant windfall.

If Jed sold Clampett Oil stock to raise cash for the gift, for each share sold he would realize $100 of long-term gains taxed at 33%. Thus, he would have to sell $53,731 of stock to transfer $36,000 of cash.

If Jed were to give Jethro and his wife shares of Clampett Oil totaling $36,000 market value and have them sell the shares instead, due to their income, living in Florida, and having two dependents, they would owe zero capital gains. Downstreaming the appreciated stock allowed Jed to avoid paying $17,731 in taxes to make his $36,000 gift.

An additional benefit for those who may be facing estate taxes is that these gifts help reduce the size of the giver’s taxable estate.

There are many common situations where it may be advantageous to use appreciated securities rather than cash:

  • Wealthy parents or grandparents helping their less-wealthy adult children or grandchildren with rent and other living expenses.
  • Helping extended family members who are living on fixed income or Social Security.
  • New college graduates, who commonly have income from only May to December of their graduation year.

It is essential to have a good understanding of both the giver and the receiver’s Federal, State, and Local taxes. In the example above, California has a high tax on capital gains, while Florida has none. If Jethro and his wife were residents of New York City rather than Florida, their Federal tax bracket would not change but they would have faced both New York State and City taxes when the shares were sold, thus decreasing the final amount of the total gift.

Your Crestwood team can help you identify situations where Downstreaming may make sense and work through each step of this process.

Upstreaming: Passing unrealized gains up one or more generations

In contrast to the gifting strategy above, Upstreaming is the practice of giving appreciated securities from a younger generation giver to an older generation receiver who then passes assets back to the younger party upon their passing.

The process works like this:

  1. A younger party who has significant unrealized gains makes a gift to the older party.
    • This can be in the form of recurring annual exclusion amount gifts ($18,000 in 2024) or as a larger amount in a single year (which requires the giver to file a gift tax return as this uses a portion of the giver’s lifetime exclusion amount.)
  2. After the gift is given, the older party updates his or her estate documents to bequeath the assets back to the younger giver or another party upon their passing.
    • If multiple family members are Upstreaming, a best practice is to create individual accounts to track each person’s gifts to simplify estate settlement.
  3. At death, the older party person’s assets receive a “step-up” in cost basis, meaning the cost for determining taxable gains is adjusted to the market price at the time of passing.
  4. The earmarked assets are then passed back to the younger party with the stepped-up basis.

This strategy works particularly well if the younger party would likely have estate taxes at their passing while the older recipient’s estate is below the lifetime estate tax exemption ($13.61 million in 2024).

Section 1014(e) of the tax code does place restrictions on how this process works, however they can be manageable by planning ahead:

  1. The older party must live beyond one year from the gift date OR
  2. The older party must bequest the appreciated asset to someone other than the original donor or their spouse

Failure to meet either requirement would result in the securities not receiving a step-up in basis.

Returning to the Clampett Oil family above, Jed’s mother-in-law Daisy is 80. Daisy owns her home but has no assets of her own. Jed’s daughter Elly has $6 million of Clampett Oil stock gifted to her by her father with the same zero cost basis. She has no other assets and thus would like to diversify her portfolio, but capital gains are an obstacle.

Using the Upstreaming technique:

  1. Elly transfers her $6 million of Clampett Oil to Daisy. Elly will need to file a gift tax return since this is over the $18,000 annual gift exclusion amount.
  2. Daisy updates her will and creates a new taxable account to hold the shares.
  3. Daisy passes away over a year later and in that time, Clampett Oil stock has increased in value from $100 to $120 per share.
  4. The cost basis of the Clampett Oil shares in the account for Elly is stepped up from zero to $120 per share.
  5. The executor follows through on the instructions in the will and distributes the shares back to Elly. Daisy’s other assets such as her home pass through her will normally.
  6. Elly is now free to sell the Clampett Oil shares and diversify without having to pay capital gains.

Managing Capital Gains is an Ongoing Process:  Start Planning Now

A small investment of time and planning today may lead to lower tax bills tomorrow. Whether you’re looking to support loved ones or safeguard your legacy, Downstreaming and Upstreaming strategies may offer tangible benefits. If you are interested in learning more about these and other strategies, please reach out to your Crestwood team.

 

 

 

 

 

 

 

The information contained in this document is provided by Crestwood Advisers Group, LLC (“Crestwood”) for general informational purposes only. For estate planning advice, consult with your team of advisers. Crestwood is not a law firm and does not provide legal advice. Crestwood is not a CPA firm and does not provide tax, audit, or attest services.