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2013 Wealth Planning Checklist

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With the new year well underway, a multitude of economic questions have been resolved. Although many questions have been put to rest, the fact remains that we still face the unresolved debt ceiling situation. With that in mind, and with the recent track record of legislators, delaying action to take advantage of the new tax laws could prove costly as they have the potential to be used as "bargaining chips" by either political party to the ultimate resolution of the debt ceiling crisis. The charts below represent some of the changes.

Changes in estate taxes from 2012 to 2013

Consult with your financial advisor to determine what actions may be necessary to improve your personal financial situation. Taking action now may have a beneficial effect on your investment, retirement and estate tax planning strategies. With this in mind, we have created the following checklist of important considerations that we encourage you to review and discuss with your SunTrust Advisor.

Check List for Everyone

Explore opportunities to refinance existing debt

How long the current historically low interest rate environment will continue remains in question beyond 2013. But if you haven’t yet refinanced any existing higher-interest debt on mortgages or other loans, or if your short-term plans include the purchase of a second property or other large ticket item, now may be the time to act.

Continue to consider gifting assets to reduce estate and gift taxes

Although we now have additional clarity with respect to the Estate and Gift tax exemptions, it is still possible that some of these recent "wins" could be put back on the bargaining table if lawmakers cannot come together on other key economic issues yet to be resolved (i.e. the debt ceiling). By gifting assets now to take advantage of the high exemption amounts, you not only may reduce gift, estate and generation-skipping transfer (GST) taxes, but also remove future appreciation on those assets from your taxable estate.

Establishing a trust can help you take advantage of the current estate and gift exemptions

Certain trust vehicles such as Credit Shelter Trusts and Irrevocable Life Insurance Trusts may afford you with a simple means to take advantage of the current estate and gift tax exemption to remove assets from your estate and tax efficiently transfer them to future generations.

Make sure you have at a minimum, a current Will, Power of Attorney and Health-Care Proxy

It’s important to periodically review these documents together with your SunTrust advisor, attorney and tax advisor to ensure that they address your current needs.

Review and update your insurance policies and beneficiary designations

You’ll also want to review insurance policies to make sure they adequately reflect your needs and that no permanent life insurance policies are in jeopardy of lapsing. Ensure that policies are set-up correctly so that proceeds remain outside your taxable estate and make certain that correct beneficiary designations are established.

Seek out opportunities for returns that will outpace inflation

Given historically-low interest rates, consider reallocating some of your lower-yielding savings such as CDs into investments in dividend-paying stocks, which may offer the potential for a better return. Certificate of Deposits (CDs) and other bank deposits are FDIC insured and offer a fixed rate of return. Investments are not bank deposits and are not FDIC insured. Investment returns fluctuate and involve risks including possible loss of principal.

Donate highly-appreciated assets to charity

If you’re planning a sizable charitable gift this year, consider donating appreciated securities rather than cash. As long as you have owned the asset for more than a year, you can deduct the full fair market value of the gift, not what you paid for it. And neither you nor the charity are required to pay tax on the appreciation that accrued while you owned the stock.

Review your current asset allocation against your long term strategic target

According to John Geraghty, SunTrust Bank's Chief Fiduciary Officer, “the extreme market volatility of the past several years has thrown many a portfolio out of balance, over-weighting some asset classes and under-weighting others, often resulting in clients taking on significant undue investment risk.” The start of the year is a good time to sit down with your SunTrust advisor to review your overall asset allocation – not just within each account but across the entire spectrum of your wealth – and rebalance where necessary to improve your risk-adjusted returns.

I am over 70½

If you are charitably inclined, consider making a contribution to a charity from your IRA

The provision to allow you to make tax-free distributions to a charity from an IRA of up to $100,000 per year was reinstated under the 2012 Taxpayer Relief Act (ATRA). These distributions are not subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer's return. This provision is available through December 31, 2013.

I have an existing estate plan

Review existing estate planning documents for “formula clauses”

Many estate planning documents are drafted using formula clauses which are designed to minimize estate taxes, but in such a way as to not require a redrafting of the documents each time the estate tax exemption amount changes. When exemption amounts are fairly stable, these clauses typically work fine, but when exemption amounts change significantly, an unintended consequence can be that certain beneficiaries are left with significantly more or less than you intended.

I have appreciated assets in a 401(k)

If you own highly appreciated employer stock in your 401(k) or other employer-sponsored retirement plan, a NUA strategy may help defer or reduce your taxes

If you’re considering rolling over your 401(k) in which you own highly-appreciated employer stock to an IRA, a Net Unrealized Appreciation (NUA) strategy can offer a special tax treatment that allows you to pay taxes as low as 15% on the employer stock portion if distributed in a lump-sum rather than rolling it over to an IRA. Rather than paying ordinary income tax on the current market value of the employer stock distributed in-kind, the strategy enables you to pay income tax only on the cost basis of the stock at the time of distribution, effectively deferring taxes on the balance of the share value. The difference between the basis and the fair market value at distribution — the net unrealized appreciation — is taxed at long-term capital gains rates rather than ordinary income tax rates when the stock is eventually sold (assuming that your new holding period is at least 13 months). The higher your income tax bracket and the more the stock has appreciated, the more you may benefit from this strategy.

Pending tax law changes have the potential to close some valuable windows of opportunity for investors. In conjunction with your attorney and tax professional, your SunTrust Advisor can help you explore the available opportunities and implement strategies to optimally position your wealth for the future.

To get started with your 2013 Wealth Planning Checklist, contact your SunTrust Advisor today.

1 SOURCE: 2013 tax rates and exemption levels - ATRA

SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively, “SunTrust”) are not permitted to give legal or tax advice.  While SunTrust can assist clients in the areas of estate and financial planning, only an attorney can draft legal documents, provide legal services and give legal advice.  Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan.  Because it cannot provide legal services or give legal advice, SunTrust’s services or advice relating to “estate planning” or “wealth transfer planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan.

These materials are educational in nature.  The implications and risks of a transaction may be different from individual to individual based upon past estate, gift and income tax strategies employed and each individual’s unique financial and familial circumstances and risk tolerances.  

SunTrust Private Wealth Management is a marketing name used by SunTrust Banks, Inc. and the following affiliates: Banking and trust products and services are provided by SunTrust Bank. Securities, insurance (including annuities and certain life insurance products) and other investment products and services are offered by SunTrust Investment Services, Inc., a SEC registered broker/dealer and a member of the FINRA and SIPC. Other insurance products and services are offered by SunTrust Insurance Services, Inc., a licensed insurance agency. Investment advisory products registered with the SEC.

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