Rich Americans are rushing to make large transactions, trying to get ahead of any moves by President-elect Joe Biden and Democrats in Congress to raise taxes or close loopholes.
Requests for property appraisals have quadrupled at New York firm Miller Samuel Inc., President Jonathan Miller said, he had to start turning away clients.
Because Republicans did better than many expected in congressional races, the results suggested President-elect Joe Biden may have a difficult time fulfilling campaign promises to raise trillions of dollars in new revenue from the wealthy.
Two run-off elections in Georgia on Jan. 5 still give Democrats a chance to win 50 seats in the Senate, affording them control of the chamber with Vice President-elect Kamala Harris casting tie-breaking votes.
Even if Democrats win both races in Georgia, “it’s still going to be very difficult for the president-elect to really get significant tax reform done with a split Senate,” said Benjamin Berger, a partner at RSM US and co-leader of its national family-office practice.
Nonetheless, tax changes are still possible in 2021, and the Biden administration could also try to close the many loopholes that make the U.S. estate and gift tax easy to avoid. “I can see a situation where Treasury issues regulations that make it more difficult to do effective estate planning,” Berger said.
The 2017 Republican tax law signed by President Donald Trump doubled the amount the wealthy could pass to heirs without paying the estate and gift tax, to $11.58 million for individuals and $23.16 million for couples this year. That and other provisions of the law expire in 2026, giving the rich another reason to make moves sooner rather than later.
Before the election, “so many clients had already started looking at gifting strategies,” said Lisa Featherngill, head of legacy and wealth planning at Abbot Downing, a unit of San Francisco-based Wells Fargo & Co.
The threat that tax changes under Biden could be retroactive to the beginning of 2021. But many advisers are now telling clients that seems less likely, with tax hikes occurring in 2022 if they happen at all.
Still, Laura Zwicker, Chair of the private client services group at Los Angeles law firm Greenberg Glusker, said she’s busier “than I have ever been” with a surprising number of new clients coming in the weeks after the election looking to finish transactions. Zwicker said. “Clients want to take advantage of the current law.”
Even if they’re not worried about tax changes in 2021, rich Americans are still pursuing the usual end-of-year planning moves designed to lower their tax bills. The pandemic-related legislation like the CARES Act offer the chance to make these strategies more lucrative.
For example, the charitably inclined have the unprecedented ability to offset 100 percent of their taxable income with donations in 2020. To take full advantage, donors need to make much of their gifts in cash -- a sticking point for those who prefer the bigger tax breaks provided by gifts of appreciated stock.
Older Americans can also lower their taxable income by not taking required minimum distributions in 2020 from individual retirement accounts. Losses from businesses or volatile stock market can also offset other income, lowering tax bills or letting clients convert traditional individual retirement accounts to Roth IRAs without paying more than usual.