The effect of losing various exemptions and deductions under the new tax law can be “really staggering” for high-net-worth clients.
So it’s important for high-net-worth clients to know where and how an advisor invests and where and how the advisor sets up trusts for those clients.
Those were some of the comments of Withersworldwide professionals, who held a tax reform briefing in Manhattan on Thursday.
“The impacts are far-reaching as individuals may need to re-evaluate their decisions to move or buy or sell a home, businesses will need to evaluate proposed budgets and projects and review their lending practices, and charities will need to review funding and operational practices,” Withersworldwide officials wrote in a commentary, “Trump GOP: U.S. Tax Reform.”
They added that professionals need to take a new approach to the tax code and the ways high-net-worth clients navigate it, now that the Tax Cuts and Jobs Act is law. The entities advisors choose to build to protect clients and preserve wealth, things such as trusts and corporations, must also change.
“There’s a tremendous amount of new opportunity in the new law; some of it is just a change of incentives that it creates for doing old things that might not have been worth it before,” said Ivan Sacks, chairman of Withersworldwide, in comments on Thursday.
And the changes in gift exemptions at the federal level will require advisors to think instead about state transfer changes.
One “staggering” example can come out of hedge fund investing, says one of the firm’s partners, David Stein.
“Let’s say your client is in a hedge fund and it is producing short-term gains and ordinary income. Maybe it’s a high-frequency trading fund that doesn’t have a lot of long-term gains,” Stein says.
Say the fund earns 12 percent before fees and that seems good, he says. Actually, it isn’t. After the carrying charges and a 2 percent fee, the investor gets only 8 percent.