Tax Planning for Wealth Transfers

The game has changed, and we do expect estate taxes to be repealed next year by the new administration and congress. Some things are unclear: we may see a phase-out of the federal estate tax over a five or six year period, instead of all at once in 2017.  The effective date could be in January, or perhaps at the end of the year.  We anticipate that federal gift taxes could also be repealed.  We further expect that “step up in basis” will be repealed, replaced by a capital gains tax on inherited property, similar to the Canadian system.  Accordingly, planning is continuing to focus on the income tax ramifications of property transfers, but as the prior post on this blog will show, capital gains […]

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Trump Tax Proposals

Courtesy of Wall Street Journal: “Income-tax rates: Both Messrs. Trump’s and Ryan’s plans would consolidate the current rates on “ordinary” income such as wages and interest from seven brackets to just three—12%, 25% and 33%. It would also make changes to the calculation of “taxable income.” The top rate of 33% would take effect at about $225,000 of taxable income for married couples; currently the top rate of 39.6% kicks in at $467,000 for couples. The top rate for singles under Mr. Trump’s plan would take effect at about $113,000, compared with $415,000 now, according to the Tax Policy Center in Washington. In 2016 the 33% rate takes effect at about $231,000 of taxable income for married couples and $190,000 for singles.   The upshot is […]

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Two Risks in Retirement Planning that are Frequently Ignored

Retirees experience heightened vulnerability to “sequence-of-returns risk” once they are spending from their investment portfolio.  Poor returns early in retirement can force the sustainable withdrawal rate well below what is implied by long-term average market returns.  The returns experienced near your retirement date matter a lot more than most people realize.  Retiring at the start of a bear market is incredibly dangerous.  You might enjoy positive average market returns over 30 years of investing, but if negative returns are experienced in the early stages when you start spending from your portfolio, wealth can deplete rapidly through withdrawals, leaving a much smaller nest egg to benefit from any market recovery, even with the same average returns over a long period of time. Retirees face the risk […]

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Obama’s Final Budget Proposal Continues to Address Estate Planning Issues

The Administration included in its 2017 budget proposals two new proposals regarding the reporting of cost basis for persons receiving inherited property, and to require donees to report their basis consistently with that of the donor with respect to lifetime gifts reported on gift tax returns. It also repeats several former estate planning-related proposals, including: (a) simplifying the income tax limitations on charitable deductions for gifts to private foundations; (b) requiring that GRATs have a minimum length of 10 years and a minimum remainder of 25 percent of the value of the transferred assets (or $500,000, if greater); (c) requiring a person who buys an interest in an existing life insurance contract with a death benefit of $500,000 or more to report the purchase and report […]

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Be Careful Relying on Online Retirement Calculators

The Wall Street Journal highlighted a recent academic study at Texas Tech University WSJ Article, Damato & Tergesen that found the results misleading and incorrect in two thirds of the thirty six free or low cost tools which the researchers tried.  In the examples highlighted, the online calculators significantly overstated the level of confidence which the data indicated would be safe for a secure retirement. The researchers recommended being careful to avoid oversimplifying a process which requires commitment and effort to 1) provide an analysis that suits your individual circumstances and needs, and 2) understand the strengths and weaknesses of results obtained, and how to use them wisely. The Will Doctor notes that our growing faith and dependence on automated simple solutions to complicated lifestyle questions is […]

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Assumptions for Risk and Investment Returns

The effectiveness of any effort to assess your future financial security depends on using assumptions about many variables.  These include your life expectancy, saving and spending levels over time, inflation, and hypothetical investment returns on your savings.  Each variable must be considered very carefully, and the results need to be viewed under multiple scenarios.  This gets complicated, especially since there are competing methodologies about how to build the variables, and much of this guesswork is getting more scientific (and accurate) on a daily basis. Of course, it is very obvious to everyone that there will be a lot of room for disagreement about future investment returns, depending on how the computations are made, and the weight of historical returns over different time periods.  Bessemer Trust […]

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John Lennon on Planning

Just ran into this quote-it’s becoming more true, every day: “Life is what happens while you are making other plans.” In the 21st Century, assumptions that are required for prudent analysis of our future financial security, and the attendant recommendations, becoming much harder to stand behind.  Someone famous once called these “known unkowns”.  Consider the following: Geopolitical risk Theological/religious conflict Terrorism Vastly increased mobility and ability to change domicile/vast refugee migrations The emergence of global citizens not tied to specific nationalities Globalization of Trade vs. Inceased Protectionism Currency fluctuations (often expressed in martial terms) The digitization of work and commerce and everything Automation of professional services Technology and the Internet Digital privacy, security and Cyberwarfare Increased Longevity Changing gender and sexual identities The rise of […]

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