Estate, Income Tax & Investment Planning in an Election Year

This year's election was coined by many as the "most important election of our lifetime" given the divisiveness of the electorate, policy issues of the candidates, the ongoing health crisis, and the economic challenges on Main Street. Leading up to and including November 3, more than 150 million people cast their vote for the next President. According to Politico, Joe Biden won the popular vote by more than 6 million and has been declared the winner with 306 electoral votes versus Donald Trump's count of 232. Despite the ongoing legal challenges with the vote that have been initiated by the Trump Administration, it appears we will have a Biden Administration presiding over this country on January 20, 2021. Several keys to estate, tax and investment planning for the new year include being knowledgeable of the Biden's positions and your specific situation, then trying to plan accordingly. The best planning includes elements of flexibility where possible, proper balancing of your competing interests, and some structure for ameliorating the risk of unintended consequences.

On October 27, 2020, ACG San Diego hosted a very informative virtual BrownBag event on Estate, Income Tax & Investment Planning in an Election Year. The esteemed panel discussed several strategies to consider in reducing taxes and increasing long term wealth given the proposed policies of both Presidential candidates. And it's not just the presidential election that matters. Since much of a president's agenda requires congressional approval, the outcome of the congressional races is also key. The House continues to be controlled by the Democrats following the election results. Control of the Senate remains an issue. As of this writing, there will be an important run off election in Georgia on January 5 to determine Senate control.

The featured panelists were Michael Morales, Attorney at Chhokar Law Group, Ronald A. Friedman, Tax Partner at PKF, LLP Estates and Trusts Department, and Ryan Mitchell, Vice President, Wealth Advisor at Goldman Sachs Personal Financial Management (GS PFM). The engaging discussion was moderated by Brent Glova, Managing Director at Vantage Point Advisors.

Key Tax Positions by the Two Presidential Candidates

Tax policy has become one of the major issues of the 2020 presidential election. How do the 2020 tax plans compare? Explore the table below, courtesy of Mr. Mitchell at GS PFM, to see where the 2020 candidates stand on taxes. 

Source: "Top of Mind, Beyond 2020: Post-Election Policies", October 1, 2020, Goldman Sachs Global Investment Research

Note: Intended to provide an overview of the candidates' top priorities as detailed by their campaigns rather than an exhaustive list of all policies; the Trump campaign hasn't formally expressed its intention to extend the expiring provisions of the Tax Cuts and Jobs Act, but the Trump Administration included provisions to do so in its 2021 budget proposal.

Source: Campaign documents, media sources, Tax Foundation, Tax Policy Center, Committee for a Responsible Federal Budget, Peterson Institute for International Economics, Brookings Institute.

Ronald Friedman highlighted several potential changes under a Biden plan ranging from child care tax credits, child dependent care credits, and first time buyer credits to the impact on estate taxes and long term capital gains taxes. "It's very fluid right now and anyone's guess," stated Ronald. To prepare for any changes, people are being asked to consider various strategies including Roth conversions and changes to pension plans for after-tax contributions and the like.

"We don't know what this is going to look like. What is going to happen and how it rolls out depends on the election next week." - Ronald Friedman

Michael Morales, an estate planning attorney, highlighted potential implications and shift on gift taxes. Under today's scenario, you can give away a certain (gift tax exclusion) amount without getting taxed up to $11.58 million. "Consider it a coupon from the Government when you're checking out that is worth that much," stated Michael. "Beyond that, there's a 40% tax on every dollar above that amount." Under a Biden Plan, the concern is that the gift tax will be reduced back to one half (about $5.6 million) of what it is today. This is an important consideration especially if your business or assets have been hit hard due to Covid-19. In fact, there has been an uptick in gifting activities in companies/ assets with lowered valuations as a result of the pandemic. Now is the time to consider gifting strategies if your business has been impacted and under a Biden administration that may reduce the gifting tax exclusion. It is the best time to consider gifting based on depressed valuations and fair market value. You can gift more under the $11.58 million. "Once the business returns to normal and results in a higher valuation, you may have missed the opportunity, " said Michael.

"Create an Estate Tax Plan now. Don't wait until you're on your death bed to put one together."

- Michael Morales

'Tax-Aware' Income and Investment Strategies

The November presidential election, along with a rise in COVID-19 cases heading into the winter season, promises to bring a period of uncertainty and volatility to the markets, and there will be many options to maximize income and return on investments. Depending on whether you anticipate future tax rates to either increase or stay the same, there are a number of things that you can consider this year to help you prepare for next year. "For example, if you expect future tax rate increases, depending on your specific situation, you could look at exercising nonqualified stock options, making an 83(b) election upon receipt of restricted stock, billing clients to bring forward income, and accelerating deductions," stated Ryan. "Evaluate your gains and losses and where you have tax exposure."

"Be really strategic about your choices."

-Ryan Mitchell

Mr. Mitchell also provided his thoughts on strategic credit techniques including mortgages, securities based lines of credit and intra-family loans, which can be used to accomplish a variety of goals. "Use debt strategically especially since interest rates are low. Think from a balance sheet perspective," said Ryan.

In wrapping up the BrownBag event, Ronald Friedman also spoke briefly on the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Setting Every Community Up for Retirement Enhancement (SECURE) Act, albeit topics that really warrant discussions for more than a few minutes, and their impact from the election. The CARES Act provided direct economic assistance for American workers and families, small businesses, and preserves jobs for American industries. The CARES Act was passed by Congress with overwhelming, bipartisan support and signed into law by President Donald Trump on March 27th, 2020. The SECURE Act was signed by President Trump in December 2019 and became a law as of January 1, 2020. The new legislation brings changes for long-term retirement savings and affects Americans at every age. It changed a variety of retirement account rules, including who is eligible to contribute to retirement accounts and when withdrawals are required. Challenging discussion points indeed and ones that will be monitored.

Final Thoughts

These topics and their impact from the election are incredibly complex and dynamic. We cannot predict the future, but we can try to anticipate opportunity and to mitigate risk with good scenario planning. It is highly recommended that you contact your financial advisor, tax and investment planning team of professionals to discuss your specific circumstances to maximize your goals and objectives.

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Disclosures

Chhokar Law Group

Chhokar Law Group provides integrated Asset Protection and Estate Planning services to individuals, families and business owners throughout San Diego. More information on the firm can be accessed at https://socalclg.com.

Goldman Sachs Personal Financial Management (GS PFM)

Goldman Sachs Personal Financial Management is a national wealth management practice with more than 240 financial advisors in 100 offices throughout the U.S. helping clients live the life they want. United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization. More information on the firm can be accessed at https://goldmanpfm.com. A full copy of the disclosure can be accessed at https://www.goldmanpfm.com/disclosures.

PKF Accounting & Audit

PKF, an independent member of Allinial Global and PKF International networks, provides auditing, tax preparations and financial planning services to both public and private companies of any size. They are a registered member of the Public Company Accounting Oversight Board (PCAOB), and are certified to work with both private and public companies in any industry. More information on the firm can be accessed at https://www.pkfcalifornia.com.

Vantage Point Advisors

Vantage Point Advisors (VPA) specializes in corporate valuation and related financial advisory services. The firm provides valuation services in connection with transactions, financial reporting, tax reporting, litigation support, and other general corporate planning activities. More information on VPA can be access at https://www.vpadvisors.com.

Association for Corporate Growth (ACG), San Diego Chapter

ACG is the global community for middle market M&A dealmakers and business leaders focused on driving growth. For more information on ACG Programs, Membership and Sponsorship, please visit https://www.acg.org/sandiego.

?David H. Crean, Ph.D., is a Managing Director for Objective Capital Partners, a leading investment banking advisory firm in Southern California, and the President of the Association for Corporate Growth (ACG) San Diego Chapter.

The ACG BrownBag events are lead by the Chapter's Private Company Forum and Marketing Committees. A special thanks to our leadership committees led by Leo Klijn, John Foley, and ACG San Diego Executive Director, Judy Susser-Travis.