R. Cory Spaulding, CTFA

Trust Relationship Officer

Tax Planning in a Year of Uncertainty

Much has been written this year about potential changes to tax law in 2021 and many across the country are trying to divine just what exactly Congress will accomplish before December 31, 2021. I will not use this space to add another voice attempting to make that prediction because the real answer is: none of us can say with any certainty what will happen.

The focus is less about what Congress will put in or out of any possible legislation and much more about how you can plan for your best interests in spite of a lack of predictability from the Capitol building.

For illustrative purposes, let’s briefly review what appears to be the current shape of things within the House Ways and Means Committee. As of changes in late September, the bill being considered includes, in part:

  • Corporate tax rates increase to 26.5% from 21% (White House wanted 28%)
  • 3% surtax on earnings above $5 million
  • 3% surtax on estate and trust income in excess of $100,000
  • Long-term capital gains tax increase on top rate to 25% from 20% (White House wanted 39.6%)
  • Top Marginal tax rate for individuals (to 39.6% from 37%)
  • Minimum tax on foreign income of U.S. companies up to 16.6% from 10.5% (White House wanted 21%)
  • Lifetime exemption for estate tax from $11.7 million to $6.02 million (indexed for inflation – as of January 1, 2022)
  • Changes to the taxation of grantor trusts (potentially including popular strategies such as SLATs, GRATSs, QPRTs, and ILITs) to include these assets in the grantor’s taxable estate
  • Elimination of valuation discounts on transfers of ownership interest to family members for entities that own passive or income generating assets as opposed to an operating business

Again, this is not an exhaustive list nor is it likely to be what the bill looks like in its final form. And then it has to pass through a divided Congress and the President has to sign it into law. Back to our earlier unanswerable questions: What will the final bill say? Will it become law? What should you do now in order to plan for these potential changes? The best answer that I can provide is that you should be speaking with your client centric team at Greenleaf Trust, and potentially your attorney and CPA, to review your specific needs and concerns and determine the best route forward for you.

That said, I will share with you that as I have been having conversations with clients throughout 2021 regarding proposed changes to tax and estate law, there are a few themes that have been consistent. First, are you considering speeding up plans you already have in place for the next several years to instead complete the changes before year-end 2021? And, a closely related question, if Congress does not act in 2021, would you regret any action you might currently be considering? If you are simply hastening an already well-established plan for the transfer of your assets, that may be an effective strategy for responding to the uncertainty in Congress to ensure the goals you have are carried out in a tax-efficient manner.

If, on the other hand, you are only considering making changes because Congress might act by year end, I would caution you to be very thoughtful and deliberate with your next steps. Many of the changes you will likely be considering are irrevocable in nature and would result in you having a different relationship to your assets going forward. It is sometimes the case that the strategy that makes the most sense on paper does not feel right for clients. In a time where it feels that your decisions have to be made quickly and with incomplete knowledge, there is a wide margin for error and regret.

If Congress does act and you make no changes in 2021, it may mean a higher tax bill for you or your heirs, but you might prefer that compared to giving up control over your hard-earned assets during your lifetime. These decisions are deeply personal and your client centric team is here to help, but it is you who will live with the results of the choice and so you must be comfortable with the final decision.