“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.”
A very interesting article in today’s NY Times Business Section. Estate planners will be surprised at the issues discussed.
“The answer: help rich people pay less in taxes. In the case of Mr. Black, the chief executive of Apollo Global Management, his advice could have been worth as much as $2 billion in savings, according to a law firm’s review of Mr. Black’s business dealings with Mr. Epstein….Mr. Epstein’s specialty was suggesting ways for wealthy clients to use sophisticated trusts and other investment vehicles to reduce their tax liability while passing on assets to their children, according to documents reviewed by The New York Times and interviews with 11 people familiar with his work. In the process, he collected hefty fees — usually based on a cut of the anticipated tax savings….In Mr. Black’s case, according to the review by the law firm Dechert, the savings were enormous: about $1 billion for a single GRAT. Mr. Epstein’s detection of a problem in a trust set up in 2006 and his proposed solution were “the most valuable piece of work” that he performed, the report said. “Outside legal counsel described the solution as a ‘grand slam,’” according to the Dechert report, which was commissioned at Mr. Black’s request after The Times reported in October that he had paid Mr. Epstein at least $75 million in fees.”
“Critics had an immediate, and unsurprising, reaction, arguing that such taxes will push the wealthy to move to lower- or no-tax states. But is that true?
“While some wealthy people will move, proponents of these taxes argue, few will make good on the threat to move to Florida (with no state income tax) or, in New Jersey’s case, to Pennsylvania (where the state tax rate is one-third its neighbor’s rate). They argue that high earners and entrepreneurs have family and community ties that keep them from moving away.”
“As the 2020 presidential election approaches, uncertainty continues regarding the potential for tax legislation and changing market conditions, causing many to consider using current transfer tax exemptions with gifts before year-end. Individuals planning to transfer hard-to-value assets may wish to consider using a gift agreement with a defined value clause to shield against unwanted gift tax consequences.”
Paul Sullivan (Wealth Matters) writes today in the New York Times, “What needs to be analyzed for affluent individuals are the potential changes no candidate is talking about: lowering exemptions and raising rates for the estate and gift taxes and ending the valuation discount for closely held family businesses, a tax break that allows families to transfer a valuable asset for less than it is worth.”
While traditional estate plans may cost less, the value added with a comprehensive legacy management approach generally exceeds its marginally higher expense. Proactive management supported by a cooperative multi-disciplinary team helps families see what is on the horizon and efficiently navigate changes. Professional services rendered to implement and maintain a plan also eliminate many costly issues that routinely emerge when clients use a less sophisticated or “DIY” approach.
“Heckerling presenters emphasized that flexibility in planning will remain key for families and advisors through the on-going roll-out of the TCJA and related guidance. Given the TCJA’s temporary nature, the possibility for future tax law changes depending on future election outcomes, and the many moving parts of planning for the “modern” family, successful plans will require active management and on-going monitoring of both federal and state tax and legal developments.”
“Relatively small shifts in applicable interest rates can have a disproportionate effect on the performance of rate-sensitive legacy planning. Appreciating the potential economic impact of the rate changes and how other factors, such as payment structure, term selection, and asset valuation, also can complement overall performance, may help clients and advisors to better customize the planning to achieve the intended goals.”
“The IRS has issued long awaited guidance concerning the proper reporting of cash and noncash charitable contributions…Failure to comply strictly with these requirements can result in a denial for some or all of a claimed deduction.”
“In a world of increasing commoditization, adding value is key. Advising on product selection and identifying common trouble spots in the development of a life insurance plan can offer advisors significant opportunities to provide value to their clients. Collaborating with other allied advisors early on in the client’s planning also can alleviate many of these problems without creating extensive delays to policy issuance.”