Blue Bell PWM

INSIGHT

Wealth Planning Post-Election

Alex LaRosa

Alex LaRosa

Investment Advisor Representative

December 11, 2020

While we transition from the current administration to the next, we continue to urge clients to “plan” but not “act” solely on political predictions. Most importantly, we want clients to be intentional about their long-term goals, which should still be the driving factor in their decision making, regardless of who sits in the oval office. With that in mind let’s examine some planning opportunities moving forward. 

Impact on Tax Planning 

If Republicans do retain control of the Sente, the progressive tax changes proposed by President elect Biden will likely have to be toned down, at least until midterms.  

The potential of a divided government suggests that the Tax Cuts and Jobs Act of 2017 will likely remain intact. Gift and estate tax exclusion amounts will likely remain high, historically speaking, for some time. This means that in 2020 clients can give away $11.58 million tax-free. This amount is scheduled to increase in 2021 to $11.7 million. 

It is expected that these limits will remain until atleast midterms (possibly until their scheduled sunset in 2026). At that time exclusion will automatically revert back to $5 million per individual. This makes gifting strategies even more important. You can read about these strategies here

A divided government also means that the top tax rate is likely to remain at 37% until the TCJA sunsets in 2026 and goes back up to 39.6% Given the current deficit and increased spending through stimulus it is hard to imagine tax rates decreasing. 

With tax rates holding steady, year-end planning should involve deferring income and gains into future years, while accelerating expense and deductions into the current year. Also consider exploring tax-loss harvesting opportunities, which involve selling investments to offset any taxable gains during the year. 

Three Wealth Planning Strategies to consider 

  • Take advantage of possible market volatility. The Senate runoff in Georgia could bring swings in the market, which can present planning opportunities. If the market continues to increase, gifts of highly appreciated stock could allow you to take a deduction for the full fair market value of your stock while avoiding capital gains taxes on the sale. If the market pulls back, Roth conversions allow payment of taxes on the conversion at lower prices while avoiding taxes on distributions in the future. 
  • Consider gifting to flexible trusts to use the larger, expiring lifetime gift tax exclusion amount. Any dip in the market may present the opportunity to gift at depressed prices. 
  • Keep an eye on your states tax rates. Several states had new measures on the ballot. For example, Arizona has passed a law almost doubling the top rate for high earners. Illinois voters also rejected a graduated income tax rate system and will remain a flat tax state. 

If you would like to discuss planning opportunities post-election give us a call at 610-825-3540. Also, be sure to speak with your tax preparers before moving forward with any tax-related strategies. 

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Wealth Planning Post-Election

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