He added that strategies to mitigate a potential increase in income taxes can include the following:
• If a taxpayer has tax-inefficient alternatives (hedge funds) in their portfolio and won’t need the liquidity of those assets, they may consider private-placement life insurance, which shelters income from those assets.
• If a taxpayer is investing passively, consider actively harvesting losses while tracking an index.
• Advisors should hold tax-inefficient investments in nontaxable accounts.
“For the uber-wealthy, these planning ideas will only scratch the surface,” said Steven Wittenberg, director of legacy planning in SEI’s private wealth management group in Oaks, Pa. “Others will do nothing and hope that the pendulum will swing back, laws will change and new ways to shield assets from taxes will come to the surface.
“The area that provides the greatest current opportunity to plan around are death taxes for the wealthy,” he added. “High-net-worth clients are beginning to focus more on estate and gift planning to reduce exposure with a long-term view.”
How will people react to a wealth tax? “My guess is that folks are going to look at moving or holding more of their assets outside the U.S. so those assets are off the radar,” Primeau said.
Aucamp noted that significant changes to the status quo typically require one party to control both the White House and Congress, and we don’t know how things will shake out in the 2020 election.
“Planning is critical but it isn’t time to panic,” he said.