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Planning Themes and Ideas to Consider for 2021

We are excited to share the following economic update with you. In this month’s recap: Following the 2020 general election and Georgia runoffs the Democratic Party has won the Presidency, maintained control of the House of Representatives, and ended up in a 50/50 split with Republicans in the Senate. A 50/50 Senate split means Vice President Kamala Harris will cast any tie-breaking vote, to the extent a filibuster does not apply, essentially giving the Democrats voting control over Senate legislation. This makeup of Congress and the Presidency means the likelihood of enactment of new tax legislation soon is high. Feel free to continue reading below as we offer planning themes and ideas to consider for 2021. Please contact us with questions about this topic or others, as we are here to assist you! As always, we thank you for your partnership, and we look forward to managing the challenges of today and the future. Planning Themes and Ideas to Consider for 2021 Some planning themes and ideas that may be beneficial to consider in anticipation of potential income tax changes include: · Accelerating taxable income to avoid future taxation at higher proposed rates. Examples can include Roth conversions, capital gain harvesting, accelerating C-corp. shareholder dividends, exercising non-qualified or incentive stock options, or accelerating gain under 453(d) for installment sales. · Spreading out or deferring taxable income to remain under proposed new thresholds for higher tax rates. Examples can include doing Roth conversions over multiple years, using 453 installment sales, charitable remainder trusts, 1031 like-kind exchanges or investing in Opportunity Zones. · Shifting taxable income to other family members to remain under proposed new thresholds for higher tax rates. Examples can include using charitable remainder trusts and family limited partnerships. · Avoiding taxable income to minimize or avoid exposure to higher proposed tax rates. Examples can include investing in Opportunity Zones, 1202 Qualified Small Business Stock, suing Incomplete Gift Non-Grantor Trusts to save state income taxes or charitable lead trusts. · Carefully timing deductions to maximize the resulting tax benefit of the deduction if income tax rates increase or certain limitations are imposed or caps eliminated. Examples can include deferring business-related expenses, delaying unrealized capital loss harvesting, or accelerating vs. deferring itemized deductions such as SALT and charitable donations. Some planning themes and ideas that may be beneficial to consider in anticipation of potential estate tax changes include: · Making large gifts to take advantage of the $11.7MM transfer tax exemption before it is reduced. Examples can include gifting to irrevocable grantor trusts, dynasty trusts, and pre-funding life insurance trusts. · Preserving accessibility when making gifts in case the laws or circumstances change and the donor needs or wants access to the gifted money or property. Examples can include provisions in the trust allowing the grantor to borrow from it, using Spousal Lifetime Access Trusts (SLATs) or Special Power or Appointment Trusts (SPATs). · Preserving flexibility to reverse course in response to a retroactive tax law change. Examples can include a prequalified disclaimer provision in the trust instrument, using a "QTIP-able" trust or making formula gifts. · Preserving insurability by acquiring life insurance now to provide liquidity for increased estate taxes from proposed higher tax rates or lower exemptions, or increased income taxes from repeal of the step up basis at death. Examples can include buying a term policy and converting it to permanent later or a minimally-funded permanent policy now. · Make sure of other estate planning techniques that may become limited or unavailable. Examples can include irrevocable grantor trusts, GRATs and valuation discounts with family-controlled entities.


Please contact us with questions about this topic or others, as we are here to assist you! As always, we thank you for your partnership, and we look forward to managing the challenges of today and the future.

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