What steps should advisors and their clients take right now? Bob Breshock, managing director at Parametric Portfolio Associates in Seattle, said systematic loss harvesting will become even more attractive with higher capital gains tax rates. “If long-term capital gains are taxed at the Biden-proposed maximum of 39.6% versus the current 20%, the value of a gain-sheltering loss-harvesting trade is nearly doubled,” Breshock said.
Tax reform’s lowering of federal income taxes could also be reversed, said Kalimah White, Wilmington, Del.-based senior trust advisor for TD Wealth, adding that a reduction in the federal estate and gift tax exemption may also be needed as it significantly increased under the 2017 reform act. “In 2020, the exemption is $11.58 million per individual and $23.16 million for married couples,” White said. “If the exemption is decreased to levels prior to the reform, more people will be subject to the tax at death.”
Wittenberg said states might also decouple from the federal estate tax and enact their own, independent death taxes. “Utilize your lifetime exemption for gift and estate tax purposes to shift assets out of your estate before the 2025 expiration or a possible change to the law before that time,” he said.
“Take advantage of estate planning such as inter-family loans or grantor retained annuity trusts to remove future appreciation and avoid estate, gift and generation-skipping transfer taxes in the future,” Ostrager added.