How To Beat Massive Estate & Income Tax Hikes

Forbes- April 16, 2021


Make no mistake, oh my kittens, taxes are going up, and in a very big way. Not for the COVID-stunned masses, God bless and save them, but surely for you sanctimonious Fat Cats, who surely should pay an ever-fairer share.

The political sky is full of rumblings. Monetary and now fiscal stimulus rains like manna. Taxes drained from the states are returned to them, but only on the condition they spend them, and not cut taxes, with the return of their own money.

Now comes New York, in the wake of a massive exodus of its truly fattest, most productive cats, high-tailing it to tax haven states like my own adopted Florida, pinching the screws on the rich even tighter, hoisting taxes to the highest in the nation, and besting even nose-bleed California in the process. And wait, lest you plucky New Yorkers pack your bags and flee afore the fleecing hits, the new tax is retroactive to January 1 st of this here year, dad gum it! Usually Grandfather has some dancing room, but New York’s pulled his plug and chilled the corpse before the band’s even warmed up.

The trend is ugly. The new administration’s long-vowed to hike all Federal taxes on the well-to-do, and to lower the bar on taxable estates to just a few million, meaning many – if not most – readers of this piece will be paying aplenty. And if you still live in New York (I myself fled as a tax-sensitive lad at the tender age of 29 or so), note the NY estate tax – yes Virginia this is on top of the Federal estate tax – starts at the very first dollar for those exposed, and not only on wealth above the threshold “exemption” level, as for the Federal and most States’ estate taxes. As in so many other things, NY innovates and confiscates here as well.

If ever there was a time to do smart estate planning, now is it. If you move quickly you can still shelter millions – even tens of millions – using the right sort of trusts, but if you wait until the law changes and the threshold drops, you’re pretty well sunk, grandpa or no. This is serious – we are talking about converting millions of dollars of your kids’ and grandkids’ inheritance into grist for the government mill, never to be spent by you and yours again.


A favorite technique I teach for this is called the F-BOT, for Family Bank Ongoing Trust. This works like magic for married couples, and let’s them pass up to $35M or so completely free of estate and other transfer taxes, whilst retaining control and spending merriment until death do they part. For most myopic estate planners, that in itself is a hat trick, but the enhancements the F-BOT layers on to the more common SLAT (Spousal Lifetime Access Trust) chassis on which it is build yields lots of other keen features, like asset protection planning, behind-curtain trustee control, divorce fail safes, and intergenerational estate tax shelter. That last one is particularly cool, allowing tax-free wealth accumulation for centuries while letting your offspring run as far to excess as your prudent trust-drafting rules will allow. The blissfully unmarried have a few more hoops to jump through, but the F-BIT – Family Bank Individual Trust – works almost as well.

These are serious issues for families with a little bit of scratch. The 1.9 trillion COVID stimulus package has to be paid somehow, with likely billions of dollars to be milked from wealthy families. Besides raising the corporate tax rate, Democrat tax proposals will likely increase federal income taxes as well as federal estate taxes. This could have a chilling impact on tax returns for taxpayers across the United States. The Biden tax proposal and other progressive tax proposals suggest the estate exemption and gift tax exemption be dropped to 3.5 million or even as low as 3 million. The 2017 tax cuts may entirely disappear, as tax laws and the tax code changes. Governments across the nation need to raise revenue, and increasing state taxes and municipal taxes can be expected on top of hikes in federal tax and tax bills signed by the White House. The time to perfect your estate plan and estate tax plan is NOW! Unless properly planned, the risk of rising tax, particularly estate tax, on small business may be profound, with even the minimum tax becoming a tax too far. And don’t forget liberal tax proposals to hike the capital gains tax, and even eliminate the capital gains step-up in basis at death.

On income tax, there are lots of very effective techniques depending on your situation. Business owners with the right retirement plan advice can set up ROTH 401ks, and move an amazing amount of even depreciated assets into a tax-free environment. Not may planners know about this one, but the payoff can be gigantic. Another cool technique is using applied hedge fund partnership tax treatment to convert high-bracket ordinary income to low (while it lasts!) long-term capital gains treatment, with the special sauce of deferring the gain when indicated without giving up access to the case for other investment or frivolous consumption.

By Jeff Camarda, Contributor


© 2020 Forbes Media LLC. All Rights Reserved


This Forbes article was legally licensed through AdvisorStream.


The information in this communication or any information within the Asset Strategy Advisors, LLC domain, and or any attachments to any AdvisorStream communication is strictly confidential and intended solely for the attention and use of the named recipient(s). If you are not the intended recipient, or person responsible for delivering this e-mail to the intended recipient, please immediately notify AdvisorStream at privacyofficer@advisorstream.com and destroy all copies of this e-mail. Any distribution, use or copying of this e-mail or the information it contains by other than an intended recipient is unauthorized. This information must not be disclosed to any person without the permission of AdvisorStream LTD. Please be aware that internet communications are subject to the risk of data corruption and other transmission errors. For information of extraordinary sensitivity, we recommend that our clients use an encrypted method when they communicate with us.