“We physically can’t handle all the year-end deadlines at this point,” Miller said. “We started doing this after the Thanksgiving holiday, and it’s been extremely frustrating.”
The year-end frenzy is a surprise to many advisers, because Republicans did better than many expected in congressional races. The election results suggested Biden might have a difficult time fulfilling campaign promises to raise trillions of dollars in new revenue from the wealthy.
“Very difficult”
The two run-off elections in Georgia on Jan. 5 give Democrats a chance to win 50 seats in the Senate, affording them effective 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 U.S. and co-leader of the accounting firm’s national family-office practice.
Nonetheless, tax changes are still possible next year, and the Biden administration also could try to close the many loopholes that make U.S. estate and gift taxes 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.
Gifting strategies
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.
“We’re telling them Don’t take your foot off the gas,” Featherngill said.
The main reason for rich taxpayers to make moves by Dec. 31 is the threat that tax changes under Biden could be retroactive to the beginning of 2021. Many advisers are now telling clients that seems less likely, with tax hikes occurring in 2022 if they happen at all.
Still, Laura Zwicker, chairwoman of the private client services group at Los Angeles law firm Greenberg Glusker, said she’s busier than ever, with a surprising number of new clients coming in the weeks after the election looking to finish transactions this year.
“Estate planning is emotional,” Zwicker said. “Clients want to take advantage of the current law, which many have internalized as having been in place forever.”
Uncertain times
After a crazy 2020 that underscored “we live in uncertain times,” clients are acting out of “an abundance of caution,” said Susan Hartley-Moss, a partner at Cerity Partners, who heads the firm’s trust and estates planning division.
“A really smart adviser would advise you, ‘Hey, let’s not take any chances. Let’s use up the remainder of your $11.58 million. You don’t want to risk it,’” Hartley-Moss said.
Advisers say the pace of work this month is similar to the rush at the end of 2012, when Americans raced to complete transactions before the estate tax exemption was scheduled to drop in 2013. That change was averted in a last-minute deal.
Biden has called for income tax increases on the wealthy, including much higher levies on capital gains. Advisers say that has prompted some clients to try to sell businesses or investments this year, locking in rates that are unlikely to fall but could rise in the years ahead. Some millionaires could face higher state and local taxes next year, with New York and other states facing severe budgetary shortfalls.
Not every adviser agrees it’s necessary to pay extra this year to avoid hypothetical tax hikes in the future, since deferring taxes still has financial advantages. But for some clients, “The devil you know is better than the devil you don’t know,” Berger said.
Charitable donations
Even if they’re not worried about tax changes next year, rich Americans are still pursuing the usual end-of-year planning moves designed to lower their tax bills. The pandemic and Covid-related legislation including the Cares Act offer the chance to make the strategies more lucrative.
For example, the charitably inclined have the unprecedented ability to offset 100% 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 were able to lower their taxable income by not taking required minimum distributions this year from individual retirement accounts. Losses from businesses or this year’s volatile stock market can offset other income, lowering tax bills or letting clients convert traditional IRAs to Roth IRAs without paying more than usual.
With 2020 almost over, “There is a race to the finish line,” Hartley-Moss said.