As Time Draws Near: Estate Planning in the Final Chapter

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When someone close to you is nearing the end of their life, it can feel overwhelming. You want to do everything possible to support them, but it’s hard to watch as they struggle against a battle they won’t win. The doctors have already outlined the final chapter of their journey, and while you focus on bringing joy and comfort to their remaining days, there may be more you can do.

Often, one of the greatest concerns for someone nearing the end of their final chapter is how their loved ones will be cared for after they’re gone. One way you can help ease their worries is by seeking advice from an estate planning attorney, even if an estate plan is already in place. There are still important steps that can be taken, even in the final stages of life, to ensure their wishes are fulfilled and their assets are protected.

Here are a few strategies that can be implemented when time is short:

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1. Annual Exclusion Gifting

Each person can give up to $18,000 per year (starting in 2024) to anyone they choose without affecting their lifetime gift tax exclusion. This opportunity resets every January 1st—if unused, it’s lost for that year. At death, the opportunity disappears entirely. For example, imagine Grandma has 5 children, 20 grandchildren, and 5 great-grandchildren, and 5 of those children and 10 grandchildren are married. Grandma could give up to $900,000 in gifts per year ($18,000 x 50 recipients), significantly reducing the taxable estate. If preferred, these gifts could be placed into a trust to retain control over the assets.

2. Fractional Interests

While more complex estate planning strategies, such as Family Limited Partnerships, may be impractical when death is near, gifting small interests in business assets or real estate (other than the personal residence) can still be a valuable strategy. For instance, gifting a tenant-in-common interest in real estate could result in a discount, not just on the interest gifted, but also on the portion retained, reducing the overall taxable estate.

3. Charitable Giving

If charitable giving is important to them, making these donations shortly before death is often more advantageous than waiting until after death. Not only can the gift qualify for a charitable income tax deduction—reducing income taxes—but it also lowers estate taxes.

4. Managing Income Tax Basis

Everyone has a tax basis in the property they own, typically what they paid for it, adjusted for depreciation or improvements. Upon death, the tax basis resets to the value at the time of death, usually increasing and helping to avoid capital gains taxes. However, if they own property that has declined in value, holding onto it until death would reset the basis at the lower value, causing a loss of potential tax benefits. Selling the property before death could allow them to realize the tax loss and gain that benefit during their lifetime.

5. Roth IRA Conversion

Traditional IRAs and 401(k) plans come with built-in income tax liabilities since they haven’t been taxed yet. For those with large estates, this can lead to double taxation—both income and estate taxes. However, if their income is below $95,000 ($100,000 for married couples filing jointly), they could convert their IRA to a Roth IRA. This would subject the IRA to income taxation upfront, but it would avoid income taxes when withdrawals are made later, reducing the estate’s tax burden.

Consult with a Qualified Estate Planning Attorney

As time draws near to your final chapter, it’s wise to consult with a knowledgeable estate planning attorney. They can review the current estate plan and help implement strategies like the ones outlined above. By doing so, they can ensure the ill person’s wishes are honored while potentially saving the estate money and reducing the emotional and financial strain on loved ones.

Even when time is short, thoughtful planning can make a lasting difference.

From the desk of Attorney Brandon McGee

Brandon McGee
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