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.

And that management fee isn’t deductible anymore. “So you’re paying tax on 10 percent, although you’re only really getting 8 percent.” Add to that any state and city taxes, which can boost your effective tax rate to almost 70 percent.

“So what you are left with is that original 12 percent return, which sounded so great, is closer to 3 percent,” Stein says.

The landscape for trusts and other investment vehicles has also dramatically changed under the Trump administration’s tax reform. The law wiped out many tax exemptions and other tax reduction strategies for family offices, according to Withersworldwide professionals.

“We think taxes have been cut, and yet most of our clients are saying, ‘My taxes have gone up. What’s going on?’” Stein adds. He says the tax package also eliminated some traditional deductions and exemptions used by high-net-worth clients.

“There are strategies that we wouldn’t have used before, because they were inefficient prior to this year, that are suddenly in play,” Stein says. Before now, one might have avoided using a corporation, for instance, because the tax rate was high. Today, because the corporate rate is now down to 21 percent, Withersworldwide’s advice might change.

For those reasons, Stein and other firm officials say there are new areas of opportunity that were once shunned as inappropriate.

So with the lower rate, “today we can think about using corporations even though it means two layers of taxes, while historically we might have said that it doesn’t make any sense to have two layers of taxes,” Stein adds.

And there’s another problem, the firm says: The tax reform affects the way foreign grantor trusts hold U.S. situs assets, which define where a property is held for legal purposes. Exemption rules were changed under the tax law, which can affect the way foreign grantor trusts (FGTs) hold situs assets.

“In view of this change, trustees of FGTs should revisit their strategies for protecting U.S. situs investments from U.S. estate tax on the eventual passing of the trust’s non-U.S. grantor,” says a Withersworldwide consulting paper on the subject, “Foreign Grantor Trusts, U.S. Situs Assets And 'Check The Box' Planning Under The U.S. Tax Reform Act.”

For instance, “under the pretax reform law, trustees of FGTs generally could use non-U.S. holding companies to provide estate tax protection for U.S. situs assets and then, following the grantor’s death, effectively eliminate those holding companies.”

But under the new rules, trustees of FGTs holding U.S. situs assets through U.S. non-holding companies “should reconsider whether to and how to hold U.S. situs assets and how to manage those assets from year to year and in anticipation of the grantor’s death.”