When the future of taxes is uncertain, pre-planning is paramount, said Steve Aucamp, managing director at Tiedemann Advisors.
President Biden has proposed several tax policy changes that clients should be concerned about, said Aucamp in an interview Thursday. Clients talking with Tiedemann, an independent investment and wealth advisory firm for high-net-worth individuals, families, trusts, foundations and endowments based in New York City, have been raising questions about the potential changes, he added.
More young people are coming into wealth now because of the transfer of money from baby boomers to their children and grandchildren, which raises planning questions for advisors, he said. In addition, more young people are earning large sums as parts of the economy do remarkably well.
“Some areas of the economy are struggling, such as the service sector and places like restaurants, but at the same time, professionals and some business owners are doing very well,” Aucamp said.
These factors require advisors to guide their clients through the next few months,
Tiedemann’s baby boomer clients, who are thinking about how and when to transfer the wealth they have accumulated, are being advised to make the transfers sooner rather than later, Aucamp said, because the exemption for transferring money tax free, which is now set at $11.7 million for individuals, may be reduced substantially under President Biden.
“In particular, clients, who have assets that might appreciate substantially in the next few years, should consider transferring those assets now, while they can get more bang for their buck,” the director said.
“We are advising young people to talk to their parents about the family wealth now, even though it might be an uncomfortable conversation for some,” before changes are made to the tax laws, he added.
Tiedemann has some clients who have expressed reluctance to transfer large sums of money to children. “They do not want to disincentivize the children from making their own money,” Aucamp said. “For these clients, a trust can be established with almost any stipulations the person setting up the trust wants. Some clients set up incentive trusts that match what an heir makes with money from the trust.”
Another potential tax change raising concern among clients is an increase in income taxes for high-net-worth earners. These clients may want accelerate earnings into this year if possible, he said, to take advantage of the lower rates.
Those clients considering selling their homes in the next few year also may want to accelerate that decision to avoid paying higher capital gains taxes in the future, Aucamp advised.
“Almost every client we have is talking about some aspect” of the tax changes, some of which may be retroactive, Aucamp said. “It is important for advisors to pay close attention to the potential impact on their clients.”