The planets may be aligned for advanced tax planning In the last third of 2021.
A bevy of newly announced tax proposals, combined with the impacts of recent changes to tax laws, have created an opportunity for advisors to help their clients adjust and demonstrate value to prospective clients, Ed Slott, president of Ed Slott and Co., said during a Financial Advisor webinar yesterday.
“Let the media do some of your marketing for you,” Slott said. “The tax proposals today, yesterday and the day before have been on the front page of almost every major paper in America. ... We don’t know if any of these things are going to come to fruition. Often they don’t, but clients see them.”
Slott warned that central to the most recent tax proposals, stemming from congressional Democrats’ Build Back Better Act, is a proposal to cut the lifetime gift and estate tax exemption in half.
Currently, that exemption stands at a generous $11.7 million, and more than $23 million for married couples, thanks to 2017’s Tax Cuts and Jobs Act.
“Whether it happens or not, there’s an opportunity to trim down some estates with gifting,” said Slott, who said there are three tiers of tax-free gifting most people fail to take advantage of, two of which won’t count against the lifetime exemption.
The first would be the $15,000 annual gift exclusion, which allows any individual to make non-taxable gifts of up to $15,000 per person per year, to as many people as they want.
The second tier, which Slott calls “one of the biggest loopholes in the tax code,” allows for unlimited gifting as long as those gifts are made for the purpose of paying tuition or medical bills, and are paid directly to the educational or healthcare institution.
“The third tier is actually going ahead and using the exemption while it is here at more than $11 million,” said Slott. “If you don’t use it, you lose it, and if you lock in those exemptions now they won’t be clawed back.”
Slott also discussed proposals that would make it more difficult to get money out of a tax-deferred traditional IRA and into a tax-free Roth IRA, recommending that advisors help their clients look at getting funds out of their traditional IRAs and potentially into a Roth account or a life insurance policy that could be outside of the estate.