“Well-meaning advisors and their studious clients are not always running the numbers to help ensure that the strategies and techniques they are using will provide the best-expected results….We have found from years of experience that there is no substitute for taking out a calculator or spreadsheet and reviewing the most probable scenarios (as well as possible or unexpected situations) to determine the expected and non-expected outcome of any given technique in order to produce the most accurate map possible of the estate planning territory.”
“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.
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.”
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.”
“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.”
A very interesting article in the Business Section of the New York Times on Saturday, July 25th. On-Line in “Wealth Matters” the article is entitled, “Need Help With Your Estate Plan? Go With The Flow, Advisors Say.”
“As older adults face mortality during the pandemic, lawyers and wealth advisers are using color-coded documents and flowcharts to help them understand estate planning.” Andrew D. Hendry, vice chairman and general counsel for Colgate-Palmolive understood complicated legal documents. “But when it came to his estate plan, Mr. Hendry, like many others, was not terribly interested in digging through hundreds of pages of legal documents….He found comfort in what his wealth adviser had created: a series of color-coded documents that laid out exactly who got what, when and why….‘I’m a lawyer, and I understand estate planning documents have to be pretty heavy for the estate plan to work. But they’re really not useful to make a decision….’ ‘More people are looking to review their estate plans if something happens, but it’s hard to keep track of everything without a schedule like this,’ said John J. Voltaggio, a managing wealth adviser at Northern Trust who creates color-coded charts and simple spreadsheets for his clients, including Mr. Hendry. ‘We have that on one page. And then we can ask, ‘Should we update any of it?’”