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2020 Year End Planning Ideas

2020 has been a notably unique year. Now more than ever, a review of your financial assets and planning for the future is critical. As we head into the final quarter, here are some ideas to consider as the end of the year approaches.

The Landscape


The pandemic continues to affect almost every facet of every day life. Concerns of a “second wave” and increased hot spots in Europe and certain areas of the United States have prompted concerns of a return to economic lock downs and a continued medical crisis.

The 2020 Election

The atmosphere around the upcoming Presidential Election has been supercharged in light of the pandemic, social unrest and a growing division between the major political parties. The outcome of the election will have significant ramifications for tax legislation in the future.

A change in power to the Democratic Party will most likely result in higher income tax rates, a potential change to the treatment of capital gains and an acceleration in the reduction of gift and estate tax exemptions.

Historically Low Interest Rates & Future Inflation

After last month’s policy meeting, Chairman Jerome Powell announced The Federal Reserve will continue to keep short term rates anchored near zero and promised to keep the rates there until inflation rises consistently, perhaps through 2023.

Prior to the September announcement, Chairman Powell announced a policy shift to allow for inflation to run modestly higher than the standard 2% goal before hiking interest rates.

Economy vs. Stock Market

The economic impact of the ongoing COVID-19 crisis continues to rattle much of the economy. Though the unemployment rate fell to 7.9% at the end of September, this is still more than twice the pre-pandemic 3.5% rate. As of the time of this writing, the country is still awaiting word of further stimulus.

Through all this, equity markets (partly fueled by the liquidity injection from the government as part of the prior stimulus deal) have largely performed favorably since the trough in late March. Year-to-Date (through October 2), the S&P 500 and the Nasdaq equity indices have experienced positive growth. Specific sectors such as technology, consumer discretionary and health care have performed well in light of their ability to excel during the pandemic.

5 Ideas to Consider

1. Review and Evaluate Life Insurance Portfolios

Consistent downward pressure in fixed income markets (interest rates) has negatively impacted many non-guaranteed insurance policy projections. For policies that are equity-based, recent market volatility and/or a lack of continued premiums will also impact how the policy illustrates going forward. Updated inforce illustrations should be reviewed and any adjustments made as necessary.

For term insurance policies, where policy performance is not subject to change, coverage should still be reviewed on a regular basis to make sure the amount, duration of term remaining, and conversion options still align with needs.

2. Beneficiary Designations

Beneficiary designations should also be reviewed regularly to confirm that accounts and life insurance policies are for the benefit of the proper people. Life changes, such as divorce, the birth of child, change of state residence can have a major impact on the beneficiary designation and can easily be missed.

3. Consider Long Term Care Planning

Costs for medical care, specifically long-term care, have risen significantly in recent years; with the added stress on the health care system and long-term care facilities due to COVID-19, we anticipate this trend to continue.

There are now ways to easily link long-term care benefits to permanent life insurance. This type of design provides a “bucket of money” that can either be used during life to offset some or all of the costs associated with long-term care or remain as a death benefit for legacy planning purposes.

4. The SECURE Act

Passed by Congress and signed into law in December of 2019, the SECURE Act was designed as a way to increase retirement savings and transparency in qualified plans. From a planning perspective, the two major changes were to extend the age at which Required Minimum Distribution (RMDs) must be taken from Age 70 ½ to Age 72 ½.

In addition, this legislation essentially removed the ability to create a “Stretch IRA” – the passing of qualified money down a generation while maintaining favorable tax deferrals over a long period of time. Now, most inherited IRAs must be liquidated over a 10-year period, causing accelerated taxation of inherited qualified assets.

For retired individuals with significant qualified dollars (Individual Retirement Accounts, or an “IRA”) that intend to use these monies as part of their legacy planning, it may be advantageous to take advantage of current income rates by accelerating distributions and creating a pool of after-tax dollars. A popular technique is to use the excess after-tax dollars as a funding source to create an income tax-free death benefit for future inheritance.

5. Gifting Strategies

A combination of the increased estate and gift tax exemptions currently available under the Tax Cuts and Jobs Act along with historically low interest rates have many practitioners calling this the “Golden Age of Estate Planning”.

Under current law, each individual is able to gift, in life or at death, $11.4M ($22.8M per married couple) without federal estate of gift tax. This increased exemption has a planned sunset on December 31, 2025; commentary from former Vice President Biden has indicated plans to cut this amount prior to that scheduled reduction.

The low interest rate environment also allows individuals to make discounted gift tax values through certain planning instruments, such as LLCs and Grantor Retained Annuity Trusts (GRATs).

Moving Forward

These estate planning techniques should be reviewed by clients and their tax / legal counsel in advance of year to determine which strategies can be maximized under the current favorable regime.

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