Fortuitous or Not? Don’t Miss Out on Today’s Tax Planning Advantages

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What do you get when you have historically low-interest rates, a high stakes election with divergent views on tax policy, and a global pandemic causing economic uncertainty and medical insecurity? A favorable time to plan and implement your wealth preservation strategy.

2020 is going to be a memorable year from many perspectives. Not the least of which is the heightened interest in protecting family wealth through renewed tax, gift, and estate planning. Even charitable giving is more favorable now due to a change in the 2020 CARES Act that removes the limits on the percentage of income that large donors can contribute to qualified organizations. Charitable donations can be an important part of your overall strategy for this year if done in a timely fashion.  But this is just the tip of the proverbial iceberg.

The iceberg is the 2020 election and the fear that tax rates will go up, the elevated gift and estate tax exemption will go down, and the step-up in basis to fair market value that occurs upon death, effectively avoiding income tax on the appreciation, may be eliminated. If that is not enough, there is a real possibility that capital gains will be taxed at your higher ordinary tax rate. 

Estate planning is important in normal times especially when there are life cycle events (i.e. birth, marriage), or major changes in your life (i.e. relocating, retirement) or in the economy (i.e. recession, national election). Add the COVID-19 pandemic which is causing even healthy people to question their mortality and you’ll know why your tax and estate planning professionals are working nights and weekends to help clients prepare for what’s coming.

One thing you can always count on: proper planning is the key to transferring wealth in a responsible, cost-effective manner. 

We are counseling clients to review their portfolio for assets that have or will have significant appreciation. Whether it is stocks, real estate, or a business, now is the time to utilize today’s market conditions to protect your wealth and leverage tax opportunities.

Consider that in 2000, the gift and estate tax exemption was $675,000. The Bush tax plan increased it to $5 million starting in 2011. President Trump more than doubled it to $11.18 million in 2018 after which it has been increasing annually for inflation. Today that lifetime exemption is $11.58 – significantly more than it has ever been.  There is a strong consensus among tax professionals that this benefit will be lost or at best, reduced significantly. Keep in mind that even today’s law has the exemption reverting to $5 million in 2025. The good news: the exemption is cumulative over your lifetime and can be utilized before it is gone.

Today’s historically low-interest rates present additional opportunities for tax planning. The lower the interest rate, the more powerful the planning techniques that can be used to minimize your taxes. 

Clients are asking me, should I accelerate gains? Should I look for like-kind exchanges for my assets?

The answer is it depends, and options should be considered in a holistic manner that considers your unique family and lifetime needs from both income tax and estate planning perspectives. Integrating your income tax and estate planning strategy is necessary to achieve the greatest advantages. Do not make the mistake of doing one without considering the other.

No matter where you are with your exemption, there are still opportunities to transfer wealth while saving on taxes. Your tax advisor can help quantify your assets to make gifts with the flexibility needed to accomplish your charitable and family goals and at the same time, ensure sufficient access to your assets throughout your lifetime.

Deana Love is a CPA and an attorney who focuses on estate planning and wealth protection for her high net worth clients. She is chair of the firm’s Private Client Services group.

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