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The coronavirus pandemic affected every facet of society in 2020, creating uncertainty and challenges. It will continue to affect markets, consumer sentiment, commerce, and everyday life. That, coupled with changes in the U.S. political landscape following the November election and two run-off Senate elections in Georgia are timely incentives for high-net-worth individuals and families, philanthropists, and business owners to evaluate their tax and estate plans so they are best positioned for the long-term outlook.
Our planning guide highlights 10 steps that high-net-worth individuals, families, and business owners should consider as they look for opportunities to help meet their financial and wealth-transfer goals.
Click on the tiles below to learn how each strategy can impact your wealth and tax planning decisions.
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01
Itemized Deductions
Reassess Near- and Long-Term Goals
Living through a pandemic has made people take a step back and assess what is really important to them, looking at both near- and long-term goals. A financial plan is helpful in creating a blueprint for efficiently managing your wealth so you can do what means most to you.
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Review Current Estate Plan
Given today's environment, it is particularly important that your estate documents are up to date, including wills, trusts, and beneficiary designations. It’s important to double-check that medical directives and powers of attorney for health and property are current, and ownership titles on all property and assets reviewed.
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Make Life Exemption Work for You
The lifetime gift and estate tax exemption is at a record high of $11.7 million per individual for 2021. For married couples, both spouses qualify, which adds up to $23.4 million free of transfer taxes. This historically high exemption is scheduled to expire at the end of 2025 reverting to the previous level of $5 million, adjusted for inflation. Given the new Congress and the possibility of tax legislation, there may be an acceleration back to the sunset exemption of $5 million, or lower.
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Plan Annual Gifting
There are several ways to give loved ones tax-exempt gifts, through annual and other types of gifting. For example, you can gift $15,000 per individual in a year without tapping your $11.7 million lifetime exemption, or establish gift trusts for children, funded with annual exclusion gifts. Tuition or medical bills can be paid directly to institutions gift tax-free, or you can fund 529 education plans for children and grandchildren—front-load five years’ worth of exclusion gifts in one tax year for such plans. Or contribute to Roth IRA accounts for children who have earned income—match their earnings up to $6,000 for such Roths.
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Strategies for a Low Interest Rate Environment
Interest rates have been trending lower for the past three decades. This has had a huge impact on the value of some gifts, especially those given to charities and certain trusts used for wealth transfer. If you are considering transferring some of your wealth, a few strategies to consider in a low interest rate environment include: a grantor retained annuity trust (GRAT); an intra-family loan; or installment sales to grantor trusts.
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Assess Roth IRA Conversion
Converting a traditional IRA to a Roth IRA is popular this year for individuals who expect higher taxes in the future and/or want to accelerate income in a year with lower tax rates. You may want to consider a partial conversion now, as under current legislation, income tax brackets revert to higher tax brackets in 2026, plus new tax laws are possible. Other reasons for a Roth conversion are: you have a long investment time frame for the tax-free earnings to grow, or the ability to pay the tax cost of the conversion with non-retirement funds; you want to mitigate effects of the Secure Act, which requires any non-spouse beneficiary to deplete an inherited account in 10 years. While the Cares Act waived required minimum distributions (RMDs) in 2020, leading to tax savings during the conversion, keep in mind RMDs resume for 2021.
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Evaluate Asset Allocation and Location
Uncertainty created by the coronavirus pandemic has prompted many clients to reevaluate their asset allocation across different vehicles—non-qualified accounts, retirement accounts, trusts, insurance, foundations, and other investments. Honing in on the purpose and future intention of your funds is critical to this reassessment.
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Review Milestone Retirement Ages
The Secure Act, enacted in December of 2019, changed retirement rules to strengthen your retirement security, including required minimum distributions (RMDs) beginning at age 72 versus 70 ½. It is important to note the House Ways and Means Committee introduced a Secure Act 2.0 in October and among the possible changes to the law is increasing the RMD to begin at age 75 and allowing a higher catch-up contribution limit starting at age 60.
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Determine Year-End Charitable Planning
There are a number of smart options. One is taking advantage of the tax incentives created by the 2020 Cares Act—and extended into 2021—to provide relief to those most affected by COVID-19. Among those was the elimination of the adjusted gross income limit (previously 60%) on cash charitable donations for those who itemize their taxes. Individuals may deduct cash contributions of up to 100% of their adjusted gross income in 2020 as well as 2021. Other approaches include: giving appreciated securities directly to charities; making qualified charitable contributions from an IRA; and using a donor-advised fund (DAF).
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Effect Change Through Philanthropy
Communities across the nation and around the globe are struggling from the health and economic crisis brought on by COVID-19. For individuals and families wanting to help their communities through philanthropy, there are several strategies and best practices to consider to maximize your impact.
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Reassess Near- and Long-Term Goals
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Review Current Estate Plan
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Make Life Exemption Work for You
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Plan Annual Gifting
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Plan Annual Gifting
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Strategies for a Low Interest Rate Environment
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Assess Roth IRA Conversion
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Evaluate Asset Allocation and Location
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Estate Planning
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Review Milestone Retirement Ages
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Determine Year-End Charitable Planning
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Effect Change Through Philanthropy
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Talk to us about these strategies.
Schedule some time to talk with your William Blair wealth advisor to discuss what these strategies mean for your specific situation.
or contact us at pwm@williamblair.com with your questions.
pwm@williamblair.com
Contact your advisor
Contact your advisor
How Investors Win With 10 Key Planning Strategies
Maximizing the impact of your capital
Reassess Near- and Long-Term Goals
Review Current Estate Plan
Make High Tax Exemptions Work for You
Plan Annual Gifting
Assess Roth IRA Conversion
Evaluate Asset Allocation and Location
Review Milestone Retirement Ages
Strategies for a Low Interest Rate Environment
Determine Year-End Charitable Planning
Effect Change Through Philanthropy
Reassess Near- and Long-Term Goals
Review Current Estate Plan
Make High Tax Exemptions Work for You
Strategies for a Low Interest Rate Environment
Assess Roth IRA Conversion
Review Milestone Retirement Ages
Effect Change Through Philanthropy
Determine Year-End Charitable Planning