Strategic Financial Planning for the New Year
Key Considerations for Wealth Optimization in 2025
As 2025 begins, high-net-worth individuals, families, and business owners are presented with an opportunity to reassess and refine their financial strategies. Proactive planning can help preserve and grow wealth, ensure tax efficiency, and align financial decisions with evolving goals. This paper highlights key areas to focus on early in 2025, with a particular emphasis on estate planning, tax efficiency, and investment management.
Estate Planning: Preparing for the Lifetime Exclusion Sunset
The current federal estate tax exemption remains at an all-time high, but this is set to sunset at the end of 2025, potentially reducing the exemption by nearly half. This reduction could significantly impact families and business owners with substantial estates, making proactive estate planning critical. Reviewing and updating wills, trusts, and other estate planning documents now can help mitigate potential tax liabilities. Strategies such as gifting assets, creating irrevocable trusts, or utilizing spousal lifetime access trusts (SLATs) may help preserve multi-generational wealth.
- Action Step: Meet with your estate planning attorney to review current documents and assess opportunities to leverage the existing exemption before it decreases.
- Sample Case Study:
Robert, 62, a business owner with a $20 million estate, collaborates with his financial advisor and estate attorney to implement a SLAT. By transferring $5 million in assets into the trust, Robert reduces his taxable estate while maintaining access through his spouse. To further minimize tax exposure, Robert strategically gifts business shares, leveraging minority interest discounts and annual gift exclusions. Over time, the trust’s growth compounds outside of his taxable estate, preserving generational wealth for his children and ensuring the business’s continuity.
2. Life Insurance Review: Assessing Current Policies and Future Needs
Life insurance policies are often treated as set-and-forget assets, but their performance and relevance can shift over time. Evaluating existing policies ensures that coverage aligns with the evolving financial landscape of individuals and families. Underperforming policies may benefit from restructuring or exchanging for newer products with enhanced benefits.
- Action Step: Conduct a policy performance review with your financial advisor or insurance professional to ensure adequate coverage for family and legacy planning needs.
- Sample Case Study:
Emma, 54, holds a $3 million whole life insurance policy purchased two decades ago. A review reveals the policy is underperforming relative to newer offerings. Emma exchanges the policy for a universal life policy with a long-term care rider, increasing coverage to $4 million. The new policy better aligns with her retirement and healthcare planning, reducing estate tax exposure while providing liquidity for potential care needs.
3. Charitable Contributions: Utilizing Qualified Charitable Distributions (QCDs)
For those subject to Required Minimum Distributions (RMDs) in 2025, Qualified Charitable Distributions (QCDs) offer a tax-efficient way to support philanthropic goals while reducing taxable income. By directing RMDs to qualified charities, individuals, families, and business owners can exclude the distribution from taxable income, benefiting both the donor and charitable causes.
- Action Step: Evaluate the potential for making QCDs from your retirement accounts and incorporate charitable giving into your broader tax planning strategy
- Sample Case Study:
Margaret, 73, expects to take a $70,000 RMD. Instead of increasing her taxable income, she donates $50,000 directly to several charities through QCDs. This not only lowers her tax burden but also fulfills her charitable giving objectives. Margaret supplements this strategy by establishing a Donor-Advised Fund (DAF) with appreciated securities, deferring additional contributions for future philanthropic efforts while creating a legacy for her family.
Investment Management: Reassessing Risk Tolerance and Rebalancing Portfolios
Following significant market shifts in 2024, it is essential to reassess investment portfolios at the start of 2025. Aligning risk tolerance with market conditions and long-term objectives is crucial for sustaining growth and managing volatility. Rebalancing ensures that asset allocations remain in line with strategic goals, avoiding undue risk concentration for individuals, families, and business entities.
- Action Step: Collaborate with your financial advisor to review portfolio performance and consider rebalancing to reflect changes in the market and your personal or business risk tolerance.
- Sample Case Study:
James, 45, owns a family business and holds a diversified portfolio but notices a significant overweight in technology stocks following 2024’s market rally. Working with his advisor, James rebalances by reallocating 15% of his holdings to municipal bonds and international equities. This reduces volatility and aligns his investments with his evolving risk profile, safeguarding long-term growth for both his personal and business financial interests.
Tax Planning: Preparing for April 15th and Extension Considerations
Gathering tax documents early in 2025 allows for a more accurate projection of tax liabilities, particularly for those with complex income streams, family businesses, or ownership stakes in multiple entities. High-net-worth individuals, families, and business owners with substantial capital gains, business income, or multiple properties may benefit from filing extensions to optimize tax-saving strategies.
- Action Step: Start collecting relevant tax documents and consult with your CPA to estimate your 2024 tax liability. Evaluate if an extension is necessary to incorporate all deductions and credits.
- Sample Case Study:
David, 52, owns multiple investment properties and private equity holdings, along with his family business. To avoid rushing tax filings, David files for an extension, allowing time to analyze depreciation schedules and charitable deductions. His CPA identifies an opportunity to use tax losses, reducing his overall tax liability by $100,000.
Conclusion
Entering 2025 with a proactive financial plan can position high-net-worth families, individuals, and business owners for long-term growth and wealth preservation. By addressing key areas like estate planning, insurance reviews, charitable giving, investment management, and tax planning, they can better navigate the evolving financial landscape and ensure alignment with their overarching financial goals.
If you would like more information about the terms and strategies discussed in this guide, or if you’re ready to explore how they apply to your specific situation, contact Waverly Advisors. With experience working with individuals, families, and executives managing significant wealth, we specialize in creating tailored strategies with the goal to help you grow, protect, and transfer your assets effectively.
MEET THE AUTHOR
Brian Hershberger, CFA, CPA, PFS™, CFP®
Partner, Wealth Advisor
Brian joined Waverly Advisors in March of 2023 as a Partner and Wealth Advisor. He brings over 30 years of experience in financial planning, investment and tax advisory business. Before joining Waverly, Brian was President of Omni Wealth Advisors. Brian is a Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), Personal Financial Specialist and Certified Financial Planner (CFP) and has held numerous leadership positions with professional and non-profit organizations… Learn More
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