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With the end of the year just around the corner, it’s a good time to reassess plans and action-items. When reviewing your year-end estate planning or business transition concerns, there are several things to contemplate and review, such as year-end gift giving and tax considerations.

Below is a list of items we’ve identified that you might want to consider as you plan for the end of the year and future transitions. If you need additional assistance with year-end gift or charitable giving, estate planning, income tax, or other gifting opportunities and valuation issues‎ and would like to engage with an attorney, we encourage you to reach out to Schwabe’s Tax and Estate Planning professionals today. Additionally, our Privately Held Businesses & Enterprise team is available to assist with business transition concerns.

Year-End Gift Giving
Estate Planning
Year-End Charitable Giving
Year-End Planning For Income Tax Issues
Business Transition Planning 

Year-End Gift Giving

Federal gift tax exemptions are at an all-time high. These are use-it-or-lose-it types of exemptions and have year-end implications. Now is also the time to take advantage of the currently available valuation discounts available to closely held business interests and valuation opportunities from the COVID-19 pandemic. Assets to consider for 2022 gifting include: 

• Marketable securities
• Business interests: includes outright gifting and using family businesses and other entities to remove future appreciation from taxable estates. These entities currently qualify for valuation discounts, which provide some great opportunities to leverage the use of your estate and gift tax exemptions. Those valuation discounts could be at risk if certain tax changes occur. See Schwabe’s Op-Ed: Potential Tax Changes May Increase Cost of Passing Family Businesses).
• Charitable gifts
• Appreciated long-term capital assets

Keep in mind that it takes time to analyze, consider, and plan for lifetime gifts, especially large lifetime gifts, so the sooner you start the process of planning for gifts, the better. For more on creating a legacy through lifetime gifting, see Capital Press’ Commentary: Creating a Legacy Through Lifetime Gifting. Getting an early start is especially critical if you are contemplating gifts that must be made by year-end.

Estate Planning

There are several considerations for year-end estate planning, including estate and gift tax planning rollbacks, potential tax reform, and whether your current estate plan needs a tune-up.

• Consider Estate and Gift Tax Exemption Rollbacks: The current federal estate and gift tax exemption amount for 2022 is $12.06 million. This exemption is temporary and, absent legislative change, is set to roll back to the prior federal law at the beginning of 2026. Once rolled back, the exemption amount will be $5 million adjusted for inflation—roughly one-half of the current amount.
• Consider Gifts: Given the expected reduction in the estate and gift tax exemption, we encourage you to confer with your estate planning attorneys and other professional advisors to discuss whether a lifetime gift makes sense for your family. It is important to engage in these discussions sooner rather than later—you shouldn’t wait as the window for making large gifts may be closing!
• Check Your Plan: Year-end is always a good time to review your estate plan and consider whether it needs revisions. For more, see When to Tune Up Your Estate Plan and Four Critical Steps to Estate Planning During Uncertain Times.  For business owners, this type of planning is especially critical to do. See Succession Planning vs. Estate Planning – Why They Are Both Important.

Year-End Charitable Giving

There are many opportunities to make impactful charitable gifts that reduce taxes. If you are planning on making charitable gifts before year-end, consider our Tips for Planning Charitable Giving.

Year-End Planning For Income Tax Issues

Due to the uncertainty of tax situations in the future, before year-end, individuals and business owners should discuss, with their tax and estate planning professionals, the timing and effect of possible changes to: 

• Individual income tax rates—state and federal
• Carryback losses
• Basis or cost
• C corporation losses
• Corporate income tax rates—state and federal
• 1031 Exchanges
• Capital gain rates
• Suspension of required minimum distributions for qualified retirement plan accounts

Business Transition Planning 

The last year has brought much change: easing of pandemic restrictions, supply chain gridlock and gradual improvement, rising prices, and growing uncertainty regarding the geopolitical landscape and economic downturn. The response to these changes has been varied, creating a mix of transition planning opportunities. As many businesses look to deploy strong balance sheets to make strategic acquisitions and investments for long-term growth, other business owners are experiencing burnout and have decided now is the right time to sell or transition, rather than manage their company through strengthening headwinds. 

This dynamic has created opportunities for retirement-ready owners to find strategic buyers that align with their exit objectives. Moreover, private equity continues to be active, investing in well-managed privately held companies where the owners seek liquidity but desire to remain in the business. We continue to see private equity’s interest expand into non-traditional sectors, creating exit pathways for businesses that never considered themselves a private equity target. Succession plans involving key employees are attractive for many private companies, but labor market challenges make it difficult to find and retain top talent with ownership potential. Companies with a written transition plan are better prepared to seize attractive third-party opportunities that arise and are more likely to have successful internal transitions. For more details, please visit the Schwabe Privately Held Businesses & Enterprises page.

Conclusion

To help understand the full spectrum of proactive legal measures you can take for estate planning and business succession, we encourage you to reach out to Schwabe’s Tax and Estate Planning professionals or Privately Held Businesses & Enterprises team today.

This article summarizes aspects of the law; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

 

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