Make Hay While the Sun Shines

Make Hay While the Sun Shines

“In this world nothing can be said to be certain, except death and taxes,” claimed Benjamin Franklin. But at least with the latter matter, there can be different degrees of severity. Indeed, in some respects, we are generally living in a relatively benign tax environment these days but given the increasingly populist and progressive sentiments brewing in various quarters, this could eventually change. If so, such changes are apt to adversely affect the wealthy. From the recently and significantly increased unified Lifetime Exemption for gifts and bequests to things like regular 1031 Exchanges, to even the generally favorable long-term capital gains tax treatment, it could be that now will be looked back upon as a good time to act on multiple fronts to take advantage of such things.

Setting aside political forecasts and competing ideologies, recent history has shown both parties have contributed to present conditions, often by ignoring spending constraints while at the same time lamenting the steady rise in national debt. For example, when Democrats were last in full control, they basically maintained the relatively low capital gains tax rates that were put in place in the early 2000s by the previous administration, though adding the 3.8% Medicare surtax; and they participated in significantly increasing the Lifetime Exemption, too. Then, the recent major tax reform package under the Republicans kept this extra Medicare levy in place; and boosted the Lifetime Exemption even further—though only temporarily. In fact, this exemption is set to expire at the end of 2025 and at that point revert back to 2017 levels at half the current limits. Granted, the deficit-related Byrd Rule forced this sunsetting provision, but still, full repeal of estate and gift taxes does not appear likely anytime soon; and instead, things are scheduled to get less advantageous in due course. 

As we head into an election year, in an environment where the political pendulum can sometimes swing rather quickly, there is a great deal of uncertainty around what the next few years may hold. Despite the slight increase since the early 2000s, today’s maximum capital gain tax rates are still among the lowest that they have been since World War II while a decade-long bull market has provided a beneficial tailwind. In other words, it continues to be a generally good time to sensibly and routinely rebalance portfolios and maintain targeted asset allocations and risk exposures, and not let the proverbial tax tail wag the investment dog too much. Realizing gains at these historic low rates may seem quite prescient in future years should rates again return to previous levels. Returning to the gift and estate tax front, the generous exemption amount—currently $11.4 million per individual, and double that for couples—surely promotes more timely and deliberate action, if applicable. Moreover, the potential for discounting certain assets, such as QPRTs or IDGTs, which benefit from the presently low interest rates makes proactive planning advisable. Plus, the recent related IRS proposed ruling that addresses and assuages concerns about clawbacks makes action that much more compelling.

While other more specific areas of the tax code—like typical 1031 Exchanges—are not as likely to ever quickly or drastically change, they could get limited in coming years. For example, this provision allows real property to be swapped for other “like-kind” property without any immediate tax impact, indefinitely deferring gain. But these types of benefits are not common middle-class entitlements. Instead, they are often described as wealthy giveaways, and hence they could be the target of revenue enhancement. Proactively managing any such potential opportunities might also make sense, if appropriate and timely. It is often a key goal of many families to initiate some form of inter-generational wealth transfer, and we can help examine the related options and test the wherewithal to make such things happen successfully.

Articles and Commentary

Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.


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