Wealthy Americans are rushing to make big deals before the end of the month, trying to stay ahead of the next moves by President-elect Joe Biden and the Democrats in Congress of raising taxes or filling loopholes over the next year.
Some advisors say they are busier than ever in the final weeks of 2020, especially as they help clients transfer wealth tax-free to the next generation while they still can. Appraisers who are critical to the valuation of the assets used in these estate planning strategies have been inundated.
Inquiries for real estate appraisals have quadrupled at New York based Miller Samuel Inc., said President Jonathan Miller. At the end of November he had to start turning customers away.
“We can’t physically handle all year-end deadlines right now,” Miller said. “We started doing this after Thanksgiving and it was extremely frustrating.”
The year-end frenzy came as a surprise to many advisors as Republicans did better than many expected in Congressional races. The results suggest that Biden may have a hard time delivering on campaign promises to generate trillions in new revenue from the rich.
Two runoff elections in Georgia on Jan. 5 still give Democrats a chance to win 50 Senate seats and give them control of the chamber, with Vice President-elect Kamala Harris casting groundbreaking votes.
Even if Democrats win both races in Georgia, “it will still be very difficult for the president-elect to really carry out significant tax reform with a split Senate,” said Benjamin Berger, partner at RSM US and co-chair of the national family office – Practice of the auditing company.
Even so, tax changes are still possible in 2021, and the Biden administration could also try to fill the many loopholes that make US estate and gift taxes easy to avoid. “I see a situation where the Ministry of Finance is issuing regulations that make effective estate planning difficult,” said Berger.
The 2017 Republican Tax Act, signed by President Donald Trump, doubled the amount the wealthy could give to heirs without paying estate and gift taxes to $ 11.58 million for individuals and $ 23.16 million for couples in this year. These and other provisions of the law expire in 2026, giving the wealthy yet another reason to take action sooner rather than later.
Prior to the election, “so many customers had begun exploring gift strategies,” said Lisa Featherngill, director of legacy and wealth planning at Abbot Downing, a Wells Fargo & Co. unit of San Francisco, don’t take your foot off the gas. “
The main reason for wealthy taxpayers to take action by December 31st is the risk that tax changes under Biden could be retroactive to the beginning of 2021. Many advisors are now telling their clients that this seems less likely and that tax increases will happen in 2022, if they happen at all.
However, Laura Zwicker, chairwoman of the Private Client Services Group at the Greenberg Glusker law firm in Los Angeles, said she was “more busy than ever” with a surprising number of new clients who will join the election in the weeks following the election Complete year.
“Estate planning is emotional,” said Zwicker. “Customers want to use the current law, which many have internalized as valid forever.”
After a crazy 2020 that underscored that “we live in uncertain times,” customers are “acting with caution,” said Susan Hartley-Moss, partner at Cerity Partners, who leads the company’s trust and estate planning department. “A really smart advisor would advise, ‘Hey, let’s not take any chances. Let’s go through the rest of your $ 11.58 million. You don’t want to risk it. “
Advisors say the pace of work this month is similar to the rush in late 2012, when Americans ran to close deals before the 2013 estate tax exemption should fall. This change was averted by a last minute deal.
Biden has also called for income tax increases for the wealthy, including much higher levies on capital gains. Advisors say this has led some clients to try to sell businesses or investments in 2020, and sets interest rates that are unlikely to fall but could rise in the years to come. Some millionaires could also face higher state and local taxes in 2021, with states like New York facing significant budget constraints.
Even if they’re not worried about tax changes in 2021, wealthy Americans are still following standard year-end planning measures to lower their tax burdens. The pandemic and COVID-19-related laws such as the CARES Act offer the opportunity to make these strategies more lucrative.
For example, nonprofits have the unprecedented opportunity to offset 100% of their taxable income in 2020 through donations. To take full advantage of this, donors need to give most of their gifts in cash – a sticking point for those who prefer greater tax breaks provided by gifts from valued stock.
Older Americans can also lower their taxable income by not making the minimum required distributions from individual retirement accounts in 2020. Losses from companies or this year’s volatile stock market can also offset other returns, lower tax burdens, or let customers convert traditional individual retirement accounts into Roth IRAs without paying more than usual.
Still, with 2020 almost over, “there’s a race to the finish line,” said Hartley-Moss.
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