Year-end questions to ask, changes to watch, strategies to consider

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Planning considerations for tax, liquidity, charitable, and estate planning strategies

Photo of Robert G. Petix Jr. who wrote this story. He has brown hair and a beard and is wearing glasses with a suit and bowtie. He is standing in front of a Wells Fargo sign.
Robert G. Petix Jr., Senior Wealth Planning
Strategist, Wells Fargo Wealth &
Investment Management

Alfred Lord Tennyson famously wrote, “In the spring, a young man’s fancy turns to love.” In my world, a less poetic but apt saying may be, “In the fall, a family’s thoughts turn to taxes and planning.” As you prepare for year-end tax and estate planning strategies, you may be wondering what steps to take now. While answers differ from family to family, here are a few steps to consider.

Host a meeting that includes all of your top advisors

The fourth quarter is a good time to bring your attorney, accountant, and financial advisors together to align with your situation and objectives. The list below includes a checklist of things to consider discussing with your legal, tax, and financial advisors for this tax year and next. The sections that follow provide more context from my colleagues and me for your planning discussions.

  • Is tax-loss harvesting a potential need to offset gains realized during the year?
  • Have you met your annual exclusion for gifting?
  • Are you making any “ed/med” gifts for education and medical payments (including contributions to 529 plans) that may meet requirements for tax exclusion?
  • Have you earmarked charitable gifting for the year?
  • Have you reviewed beneficiary designations for retirement plan assets as well as any life insurance policies and annuities to make sure they reflect your current plans?
  • What strategies may help reduce income taxes for each state that taxes your income?
  • What is your plan for potential income and wealth transfer tax changes?

Begin planning for potential tax reform

For more than two years, pundits have warned that significant changes to the Internal Revenue Code were likely and that major tax reforms were inevitable. Many individuals have experienced “tax-reform fatigue” waiting to see when the predicted sweeping changes will occur — if they do.

Potential changes to estate/gift exclusion amounts

On the wealth transfer tax side, high-net-worth individuals have been encouraged over the past few years to take advantage of higher estate/gift exclusion and generation-skipping transfer (GST) exemption amounts before they are subject to a cut at the beginning of 2026.

Whether they acted on this advice or opted to wait, now is a good time for families to review potential gifting strategies with their advisors to determine whether their plans may be hampered by estate taxes, either at today’s levels or when changes come. Implementing a proactive, multiyear gifting plan could help you consider the pros and cons of your decisions. After all, the year 2026 will arrive sooner than you think.

Potential income tax increases

Many observers expect that income tax rates will increase in the coming years. Your tax advisors can help you review your options, such as whether it makes sense to do a Roth conversion of your Traditional IRA or even to accelerate rather than postpone recognition of income. A review of your specific financial situation might reveal tax savings opportunities.

Potential for increased federal tax audits

Under the recently enacted Inflation Reduction Act, the IRS is working to create specialized teams to review complex structures and identify areas of noncompliance. Work with your tax advisors now to review recommended tax strategies to determine if they are worthwhile; if so, make sure that such planning is implemented properly.

Review liquidity, charitable, and estate planning strategies

While interest rates are relatively low compared with historical rates, interest rates are expected to continue to rise in the near future. With an increasing uncertainty about the direction of the markets and the economy generally, plus the current rising interest rate environment, you may want to consider tactics for optimizing strategies currently in place. Talk to your legal, tax, banking, and financial advisors to weigh your options.

When interest rates go up, recheck your credit and cash strategy

In uncertain times, having access to sufficient liquidity can be critical when needs arise for quick access to cash. To enhance available liquidity, many clients have asked about implementing a priority credit line (PCL). A low-interest PCL loan may be preferable to selling securities in a down market. Consult with your wealth team about potential tactics.

A review of cash return optimization strategies also might be in order. Those who have had recent liquidity events may not be in a rush to put that cash to work immediately, or they may have a large tax bill due next year. Talk to your advisors to determine potential strategies such as short-term asset management that may meet your investment objectives, risk tolerance, and liquidity needs.

Charitable giving and rising interest rates: What to know as you plan

This is also a good time to consider charitable planning strategies. Many philanthropically inclined families have established a private foundation or put money into a donor-advised fund. In either case, year-end offers opportunities to make large transfers to these entities, which will be income tax deductible for the current year, while distributions can be made to charities over ensuing years.

Estate planning strategies: 5 actions to consider now

As interest rates rise, certain estate planning strategies also may make more sense now than perhaps they did recently. In addition to the charitable strategies mentioned above, talk to your advisors to learn about possible tactics that can be more advantageous when interest rates are higher, such as qualified personal residence trusts, which allow parents to convey a personal residence to children at a reduced gift tax cost.

Share plans as a family

One way for families to share financial strategies and concerns is to have regular family meetings, and the natural consequence of children returning home for the holidays can prompt the conversation. Discussing plans for annual charitable contributions offers a way for a family to reflect on their goals and values and define their legacy as a family. Other topics may include the family’s closely held business, financial and nonfinancial concerns, and potential education or volunteer opportunities.

Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.

Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.

Trust services available through banking and trust affiliates of Wells Fargo Advisors. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.

All investing involves risks including the possible loss of principal.

Securities-based lending has special risks and is not appropriate for everyone. If the market value of a client’s pledged securities declines below required levels, the client may be required to pay down his or her line of credit or pledge additional eligible securities in order to maintain it, or the lender may require the sale of some or all of the client’s securities. Wells Fargo Advisors will attempt to notify clients of maintenance calls but is not required to do so. Clients are not entitled to choose which securities in their accounts are sold. The sale of their securities may cause clients to suffer adverse tax consequences. Clients should discuss the tax implications of pledging securities as collateral with their tax advisors. An increase in interest rates will affect the overall cost of borrowing. All securities and accounts are subject to eligibility requirements. Clients should read all lines of credit documents carefully. The proceeds from securities-based lines of credit may not be used to purchase additional securities, pay down margin, or for insurance products offered by Wells Fargo affiliates. Securities held in a retirement account cannot be used as collateral to obtain a loan. Securities purchased in the pledge account must meet collateral eligibility requirements.

Wells Fargo Advisors (WFA) and its Financial Advisors have a financial incentive to recommend the use of securities-based lending products (SBLs) rather than the sale of securities to meet client liquidity needs. Financial Advisors will receive compensation on Priority Credit Line (PCL) and other non-purpose SBL from Wells Fargo Bank. Your Financial Advisor’s compensation is based on the outstanding debit balance in your account. In addition, your Financial Advisor’s compensation will be reduced if your interest rate is discounted below a certain level. This creates an incentive for Financial Advisors to recommend PCL and other SBL products, as well as an incentive to encourage you to maintain a larger debit balance and to discourage interest rate discounts below a certain level. The interest you pay for the loan is separate from, and in addition to, other fees you may pay related to the investments used to secure the loan, such as ongoing investment advisory fees (wrap fees) and fees for investments such as mutual funds and ETFs for which WFA and/or our affiliates receive administrative or management fees or other compensation. Specifically, WFA benefits if you draw down on your loan to meet liquidity needs rather than sell securities or other investments, which would reduce our compensation. When assets are liquidated pursuant to a house call or demands for repayment, WFA and your Financial Advisor also will benefit if assets that do not have ongoing fees (such as securities in brokerage accounts) are liquidated prior to, or instead of, assets that provide additional fees or revenues to us (such as assets in an investment advisory account). Further, different types of securities have higher release rates than others, which can create a financial incentive for your Financial Advisor to recommend products, or manage the account, in order to maximize the amount of the loan.

Priority Credit Line is offered by Wells Fargo Advisors and lending and margin accounts are carried by Wells Fargo Clearing Services, LLC.