September 13, 2021— Yesterday, Finseca got hold of a list of tax increases planned to pay for the $3.5 trillion dollar ‘soft’ infrastructure package. This is an early document, and we expect changes before the bill reaches President Biden’s desk – candidly, it could change as soon as tomorrow.
“Intergenerational Split Dollar Planning Can Still Work. While Estate of Morrissette may encourage practitioners to transition away from recommending economic benefit split dollar arrangements, it is important to consider the impact that certain bad facts specifically noted by the Court in this case had on the decision. The results in this case may not significantly affect IGSD planning under the economic benefit regime, provided that the plan is established for the right non-tax reasons, the facts substantiate the treatment of the IGSD plan as a bona fide sale, and conservative discounts are taken when valuing repayment rights.”
“Now that we have the Green Book, which covers all of the same ground as the STEP Act, it seems that we no longer need to be concerned with retroactive provisions and can advise clients to take certain proactive steps….Green Book = Green Light.”
“As part of their comprehensive legacy plan, clients who are charitably inclined, hold significant highly appreciated assets, and wish to create a lifestyle “annuity” should consider a CRT, especially if they can benefit from an income tax charitable deduction. Selling an appreciated asset inside a CRT may provide an economically superior result compared to selling the same asset in a client’s own hands, especially when done in conjunction with purchasing additional life insurance through an irrevocable life insurance trust (“ILIT”).”
“Financial advisers say they have been flooded with calls from clients who are trying to predict which of President Biden’s tax proposals will become law….I don’t know where we’re going with any of these taxes,” said Bill Schwartz, managing director of Wealthspire Advisors, which advises clients with $5 million to $20 million in assets. “But I do know it’s really difficult right now to justify what people call a loophole or what I call using the tax code to your advantage. In fact, it’s really hard to justify any of these techniques for the affluent right now, not that I think they’re right or wrong.”
“Individuals and businesses in high tax jurisdictions have been expressing unprecedented interest in relocating to states with more manageable tax regimes. This is especially the case with business owners looking to sell their businesses. But whether this trend rises to the level of an “exodus”—as many characterize it—is up for debate. The impetus for moving typically runs deeper than just taxes, though taxes often are the proverbial final straw. This article analyzes tax issues individuals and businesses should consider when evaluating whether to relocate from California or New York.”
“President Biden campaigned on a tax plan that would raise almost 4 trillion dollars – primarily by increasing taxes on individuals making more than $400,000 a year and raising the corporate rate. While the entirety of the plan is unlikely to become law this Congress it does provide a menu of policy options that Democrats in Congress will consider, especially once they turn to the forecast infrastructure and climate change bill expected this summer….What is likely to move forward, and what is likely to slip off the agenda?”
To read on for a breakdown on the prospects of the Biden tax plan in 2021, click here.
An interesting article in today’s NY Times authored by Paul Sullivan. He writes, “So the question for taxpayers now is: What happens once Mr. Biden can begin enacting changes in tax policy? The biggest long-term change involves the estate tax.” Sullivan goes on to discuss the possible loss of step-up in basis, “A Biden administration may move to change this for logical and revenue reasons. Imagine trying to determine the capital gains from AT&T stock that your grandmother bought in 1943 when record-keeping was done with a pencil and paper. Today, cost-basis information can be retrieved in seconds.” He goes on to discuss some of the inherent problems in this approach.
A different approach could be adjustment to current estate tax exemptions and rates. “With Democrats controlling the legislative and executive branches, there is concern that the exemption level could drop to $5 million or even $3.5 million…For the wealthiest in the country, the bigger concern is the rate itself. It’s now at 40%, but it was as high as 55% in 2001.”
“Although the grantor of an irrevocable trust surrenders the right to revoke the trust and amend its terms, the restrictions are no longer as limiting as they once were. Alternatives to judicial modifications abound. From nonjudicial settlement agreements to new trends in decanting practices to innovations in modifications by consent, clients, trustees, and beneficiaries have many potential avenues for modifying an irrevocable trust to accomplish their legacy planning goals.”