Johnson Investment Counsel

Year-End Wealth Planning Checklist

Tuesday, December 15, 2020

Anthony C. Kure, CFP®

Managing Director of Northeastern Ohio Market, Senior Portfolio Manager, Principal

Management Team, Wealth Management Services, Cleveland - Akron

Year-End Wealth Planning Checklist

This historic year is quickly drawing to a close. For many, flipping the calendar will be the most cathartic turn of a page in decades. 2020 was unforgettable for many reasons, but like every other December, it’s a good time to reflect on the past year and plan for the future. This is definitely true regarding our financial lives. Throughout the year and at year-end there are many things we review with clients. Below are just a few examples, along with some you can review on your own as we look ahead to 2021 and beyond.

Investment Portfolio Checklist

  • Assess Risk Tolerance: The historic decline and subsequent recovery in stock markets earlier this year was a litmus test for investors’ ability to endure volatility. As always, we remained focused on the long term, reminding clients to do the same. One of our most important tasks is to allocate client portfolios to match their goals with their risk tolerance so that in times of fear there is no need to panic.
  • Analyze Asset Allocation: Wise investing begins with the appropriate diversification between stocks, bonds, and cash to match client portfolios with their goals. To that end, we focus on and consistently monitor asset allocation. This includes all accounts and assets, including business interests as well as company retirement plans. As markets rise and fall, we take advantage of opportunities to rebalance to keep asset allocation in line with client objectives over the years.
  • Analyze Portfolio Holdings: In addition to asset allocation, we monitor portfolios to ensure they aren’t too heavily weighted to any one fund, industry, or company. As we detailed in our blog in August, (https://www.johnsoninv.com/blog/investment/tale-two-markets) Amazon, Apple, Facebook, Google, and Microsoft have contributed a disproportionately high amount to the returns of the broader market and today make up about 22% of the S&P 500. Those not paying attention may not realize how much their future returns will depend on those companies going forward.
  • Calculate Employer Stock Exposure:  For those whose compensation includes some form of company stock (directly or through 401(k) matching), it’s easy to lose track of exposure to the success or failure of their employer. This is a good time to evaluate this as a percentage of total net worth. In general, we recommend limiting such exposure if possible. Consider paring down and diversifying these positions to maintain a well-diversified portfolio.

Tax Planning Checklist

  • Do the Math on Roth Conversions: This year’s turmoil left many with lower income than normal. The silver lining could be to leverage the low-income year to “fill up” the lower rate tax brackets by converting a portion of tax-deferred assets to a Roth IRA and paying the lower tax rate. For additional detail check out our blog from May 2020 (https://www.johnsoninv.com/blog/tax/timely-revisit-roth-conversion)
  • Harvest Capital Losses in Taxable Accounts: When the market experiences a pullback we often consider selling positions in taxable accounts with unrealized losses. This can reduce or even completely offset realized capital gains, up to a limit of $3,000 of deductible capital losses. It’s also a good idea to refer to last year’s tax return to look for capital loss carryforwards that can be used in the current tax year. 
  • Check Mutual Funds in Taxable Accounts for Upcoming Distributions: Before year-end, mutual funds publish expected capital gains distributions. Sometimes this happens so late in the year there is little to be done to offset this gain. Still, we review fund holdings in taxable accounts to estimate how much, if any, will be paid out as taxable capital gains income before year-end.
  • Think Charitably: With many in need across the country, clients are stepping up their generosity. Two great ways to give are donating appreciated stock from taxable accounts and making Qualified Charitable Distributions (QCDs) from an IRA. We work with clients to determine the best way to donate given their circumstances.

Estate Planning Checklist

  • Review Beneficiary Designations and Asset Titling: The most basic estate planning practice is as simple as reviewing how accounts and assets are titled and ensuring the beneficiaries on various accounts are up-to-date and accurate. This simple review can have massive benefits for clients and their heirs.
  • Revisit the Roles in the Estate Plan: It’s also important to revisit who is listed in the various roles in estate planning documents. These roles include trustees for a trust, executor for wills, agents for health care power of attorney, and durable (financial) power of attorney. This includes naming multiple backups. This simple review can prevent big headaches upon death.
  • Evaluate Impact of New Legislation: Recent legislation has impacted many estate plans. This is an element of wealth planning we consistently monitor as laws and client circumstances change. For additional detail, check out our blog from January 2020 (https://www.johnsoninv.com/blog/tax/secure-act-new-law-impacts-retirement-estate-planning-many-americans)

Retirement Reality Check

  • Time to Retire? The end of the year is a great time to reassess priorities and the value of our time. Instead of thinking of retirement as “someday” we help clients get clarity on exactly when and how retirement can become a reality.

Focusing on What’s Most Important

In the simplest of terms, we help clients ensure their assets and income sources will fund their lifestyle and legacy goals. But the most impactful advice we provide allows our clients to focus on their most valuable resource – time to make memories with family and friends.

Find more practical advice on a wide variety of wealth management topics by exploring our JIC Blog: Beyond the Numbers library.

Disclaimer:

Any expectations presented should not be taken as a guarantee or other assurance as to future results. Our opinions are a reflection of our best judgment at the time this presentation was created, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events or otherwise. The material contained herein is based upon proprietary information and is provided purely for reference and as such is confidential and intended solely for those to whom it was provided by Johnson Investment Counsel.