When it comes to proper financial planning, estate planning can sometimes take a back seat to investing, saving for a home, or other life events. However, it's an important part of someone's financial foundation because it ensures that your wishes are properly met. Doing it halfway (or not at all) could leave your loved ones in a legal mess after you pass away.
Estate planning isn't a one-size-fits-all approach; much of it depends on your personal situation. However, there are a handful of estate-planning moves worth considering before the end of the year.
Image source: Getty Images.
1. Review critical estate documents
Arguably the most important step in estate planning is making sure critical documents -- such as your will or power of attorney -- are up-to-date and complete. Your relationship with people, laws, and sometimes your intentions or wishes all can change. You always want to make sure important estate documents reflect your true and current situation(s).
Make sure to review your will to ensure your executors and distributions are current, check that your power of attorney is in place for financial decisions, and put a "digital executor" in place that will have the power to access things like your email, cloud, and other accounts after you pass.
Unfortunately, a well-structured estate can fall apart with outdated documents.
2. Make sure your beneficiaries are properly set
A common misconception is that a will is the supreme document when it comes to deciding your beneficiaries. In fact, listed beneficiaries in your will don't hold much weight when it comes to certain accounts like 401(k)s, IRAs, or life insurance.
With those accounts, the beneficiary you select through your plan administrators overrides whatever is written in your will. For example, if your will states that your 401(k) should go to your spouse but you still have an ex-spouse listed as your beneficiary, the money goes to your ex-spouse.
Unfortunately, this happens more often than people realize because it's easy to forget to update your official beneficiaries if you've listed them in your will.
It's also important to name a contingent beneficiary in case your selected beneficiary passes away before you. This can help ensure your assets are going exactly where you want them to go.
3. Use up your annual gift exclusion
Each year, the IRS allows you to gift a certain amount of money to people without it triggering gift taxes or counting against your lifetime limit.
This is noteworthy because it allows you to gradually reduce the size of your taxable estate and lower your tax bill down the road. For example, if you do this over a decade, there's a chance you could lower your taxable estate by six figures, potentially saving five figures in taxes.
You can gift cash, securities (stocks, bonds, etc.), or other assets of your choice, up to $19,000 per recipient in 2026 ($38,000 per married couple). Some people choose to gift assets because there's a chance that the value increases over time, meaning you could potentially owe more in taxes later when you sell them.
If you don't use the full $19,000 or $38,000, the unused amount doesn't roll over to 2027 -- the threshold resets.
4. Consider converting your traditional IRA to a Roth IRA
The best part of a Roth IRA is that you're allowed to take tax-free withdrawals in retirement as long as you're 59 1/2 years old and made your first contribution at least five years prior. This isn't the case with traditional IRAs; you'll owe taxes on withdrawals made in retirement (and they have required minimum distributions).
If you have a traditional IRA, you can convert it to a Roth IRA, but you'll need to pay taxes on the amount you're converting. This will result in a potentially large up-front tax bill, but it could be worth it because your money will grow tax-free in a Roth IRA, ideally outgrowing whatever you paid in taxes.
Roth IRAs also don't have required minimum distributions, so you can pass the account on to a beneficiary, giving it more time to (hopefully) continue growing and eventually receive tax-free withdrawals.
This isn't the right move for everyone, but if time is on your side, it's worth considering.
