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Year-End Planning: Harnessing Resilience

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Experts from The Northern Trust Institute offer strategies to prepare for the new year.

2022 has no doubt been a turbulent year. With proper planning, however, many of the families that we work with have discovered a silver lining amid the turbulence, and have learned lessons of resilience that they will carry forward into 2023 and beyond.

This year we continue our holiday tradition of asking our experts at The Northern Trust Institute, “What is one thing you would advise our clients to do in order to best position themselves in the new year?”

We hope you find these insights helpful as you prepare for 2023.

Pam Lucina, Chief Fiduciary Officer and President of The Northern Trust Institute

This year and into next year, clients should continue to focus on using their lifetime estate exclusion amount before it is scheduled to sunset at the end of 2025 (when it will be reduced to $5 million with an inflation adjustment). The 2023 inflation adjustment to the lifetime estate tax exclusion amount is $860,000 for an individual or $1.72 million for a couple. Even if you have already reached the previous limit for giving, you can now make significant additional gifts without being subject to gift or estate tax. In addition, the limit on annual exclusion tax-free gifts to an individual has increased to $17,000 in 2023, up from $16,000 this year. The ability to make annual exclusion gifts to an unlimited number of people, every year, without counting against your lifetime estate exclusion can be very powerful. Consider making annual exclusion gifts early in 2023 to allow the recipient to benefit from the potential growth of the gift throughout the remainder of the year and beyond.

This year has given investors the tenacious, difficult-to-contain bogeyman of inflation. The evolving contours of price increases and the reactions of the Federal Reserve have persistently captured investors’ attention as we have transitioned from a relatively dovish Fed to one that is decidedly hawkish, marching on an aggressive path of policy tightening. The Fed has driven interest rates higher, prompting meaningful tightening in financial conditions, which show in weak equity prices and wider credit spreads across fixed-income securities

We take the Fed at its word, and expect the policy rate to hit at least 5%, where it will stay for longer than the market anticipates. Against that backdrop, it is critical for investors to go back to core principles: Does your investment plan align with your goals?  Has the current bout of market volatility changed your perception of and tolerance for risk? Our perpetual advice to stay the course does not mean doing nothing: It means making sure that you have the right course, and the best strategies, to meet your financial goals over time with confidence.

The last few years have held a magnifying glass to women’s innate resilience, highlighting our ability to turn challenges into opportunities. It has also reminded us that success at anything requires a team and regardless of our goals, no one should go it alone. As we prepare for 2023, we should embrace the power of community, share our experiences, learn from each other and experts, so we can be inspired to turn our vision into action as we move into the new year. Because when we come together, the possibilities are limitless.

Technological advancements and low-cost investing options have made the markets more accessible to a wider range of investors than ever before. The recent volatility impacts all investors, but can be especially nerve wracking for younger family members. Use the upcoming holidays to get a pulse check on how your family members fared and share your experiences. With all potentially difficult conversations, start small, build and listen to for what they are feeling — not what they are saying. What starts as a casual “Whew, that was a crazy year…” can build into a meaningful dialogue that respects their autonomy and reinforces bonds while sharing valuable life lessons.

For our business owner clients, as you reflect on the past year and prepare for the next, consider asking yourself, “Who knows what about my business, and why?”  The “who” can be anyone from your spouse and children, to your board and management team. The “what” might include the value of your business, what family members get to own and/or work in the business, and your long-term plans for the business. The “why” is conveying with honesty and transparency the purpose behind your business, your wealth and your legacy to the important people in your life.

You have likely heard of the three Ts of philanthropy which refer to time, talent and treasure. In recent years, practitioners in the nonprofit sector have added a fourth “T” to the mix: ties or, in other words, using your networks of colleagues, friends, family members and other funders to gather charitable gifts for and increase awareness of the charitable causes you are supporting. Certainly, financial contributions and unrestricted gifts are the lifeblood of nonprofit organizations, but some nonprofit organizations would have to close their doors if their non-cash resources, namely their pool of volunteers, decreased significantly — even if they remained well funded. An important resource of many of our clients is their affiliation with groups of individuals who can be mobilized to support charitable endeavors. “Doing good and doing well” is the new mantra for rising generations and younger employees. Clients have an opportunity to lead by example and do good in the community when they are willing to offer their time, talent and ties in addition to their treasure.

We humans may be complex creatures living complex lives navigating a complex world — yet, we are ultimately governed by pretty simple rules. One of the most important of these rules is the need to have meaningful relationships with others. Indeed, even though we may all have a unique, individual perspective, our worldviews are based on the first relationships we form: our family. The holiday season is a wonderful opportunity for families to strengthen their bonds through meaningful interactions, open intergenerational dialogue, show gratitude, and identify the shared values that bond family members together as a cohesive unit.

Start Planning

Key Tax and Wealth Planning Considerations

Download our 2022 Year-End Tax Planning Checklist for considerations to discuss with your tax advisor.

Tax Planning

2022 Year-End Tax Planning Checklist

Identify issues to discuss when you meet with your tax advisor.

THE NORTHERN TRUST INSTITUTE

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Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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