President Joe Biden recently released an outline of the American Families Plan (the Plan), which follows many of the provisions that Biden outlined in his campaign. We asked Litman Gregory Senior Advisor, and former practicing CPA, Chris Wheaton a few questions about the Plan to better understand how it may impact planning with clients.
Yes, it is important to point out that there will be changes to these provisions as they move through the legislative process. The Plan contains numerous large tax increases, so it is unlikely to garner support from any of the 50 Republican senators. Therefore, the Plan would need all 50 Democrat or Democrat-leaning Independents to vote in favor of it to become law. As has been the case with other legislation, more moderate senators could ask for changes to the law, which might result in eliminating certain provisions, adding others, and/or lowering the proposed rates. So, while it is wise to start thinking about steps to take to minimize tax liabilities, we think it is best to wait to see what the final legislation looks like before implementing planning moves.
Here is a summary of what we see as the key provisions of the Plan and their potential impact:
Yes, the most surprising omission was a change to the estate/gift tax exemption, which is currently $11.7 million per person. Many had expected to see proposals to lower this amount to $5 million or less per person. We will continue to track potential changes in estate tax laws, as this is a key area of wealth planning that we focus on with clients.
The Fact Sheet does not mention the effective date of the legislation, but many Congressional analysts believe that the legislation would be more likely to pass if the effective date is deferred to January 1, 2022. However, there is no guaranty that the effective date will not be in 2021. Based on past tax legislation, effective dates can be retroactive to January 1 of the current year, or when there is committee action on the bill, or made effective on the enactment date.
In terms of what our clients could consider doing today in anticipation of the potential changes, that is hard to say specifically at this time. While it is difficult to determine what provisions will make it into the final legislation, what seems clear is the desire to raise taxes on high-income taxpayers. If legislation passes that increases tax rates in 2022, the following are some tax minimization strategies we will be discussing with our clients:
I would suggest that clients be in touch with their Litman Gregory advisors as well as their tax professionals, knowing that we are all watching this tax legislation closely and can continue to provide updates and planning suggestions. We are happy to talk through these planning ideas with our clients, especially given that each person or family’s situation is different and needs a customized approach. As always, we recommend consulting a tax advisor before making any tax planning moves.
Our Thoughts on the Silicon Valley Bank Failure
Recent problems in the banking industry have increased uncertainty in the financial markets. On behalf of our clients, we have taken a close look at the situation and assessed the potential consequences. In this post we summarize the circumstances at Silicon Valley Bank that led to its failure, describe the broader implications, and review what we see as minimal impact for our clients and their portfolios.
Insight Newsletter—Winter 2023
Our Insight Newsletter is now available. Included in this edition: Investment Commentary Research Update: Trend Following with Managed Futures Tax Planning Opportunities from
Research Update: Trend Following with Managed Futures
The evidence of the long-term value that trend-following managed futures bring to a balanced portfolio is compelling, even though there are shorter periods where sharp see-saw patterns can lead to disappointing returns. However, in a year like 2022 that saw significant declines for both stocks and bonds, managed futures experienced large positive gains and were one of the only asset classes to provide meaningful downside protection. This research update serves to address many of the questions that we receive about this interesting investment strategy.