6 tax strategies for year-end planning
New U.S. tax laws should inspire some Americans to pursue year-end tax strategies that will seek to maximize their wealth, according to John McManus, founding principal of McManus & Associates. He said these strategies make sense given the new tax framework, as well as estate planning recommendations. Click through the different strategies and listen to Mr. McManus discuss these strategies here.
Give it away sooner rather than later
Given that the increased estate tax exemption is temporary, high-net-worth clients worried about future estate taxes should make $15,000 (or $30,000 for a married couple) annual exclusion gifts to children and grandchildren into flexible irrevocable trusts before Dec. 31. Right after Jan. 1, give the gift again.
Offsetting gains due to growth
If a client sold appreciated investments or a business in 2018, that will spark capital gains taxes, so offset those by donating to a family-controlled charitable vehicle like a private foundation or charitable remainder trust before Dec. 31.
Think before you sell
Given the new limitation on the state and local tax (SALT) deduction for federal income taxes, clients should think before they sell appreciated investments or a business in the next few years because those sales will lead to unusually high capital gains taxes. But if they establish a non-grantor trust in Delaware or Nevada to store assets prior to a liquidity event, they can avoid state capital gains tax.
Investment diversification with insurance?
With the SALT deduction now constrained, think more about income tax exposure on investments. Consider whole life insurance, which continues to appreciate in value without resulting in income taxes due, and represents an efficient component of a diversified portfolio.
Tax benefits of insurance
High-net-worth families who will still have state and federal estate tax exposure should be thinking about how to utilize insurance. Permanent insurance coverage owned by an irrevocable life insurance trust should be a component of smart estate plans.
Here’s a three-generation plan: A grandparent could loan significant funds to their child to acquire a life insurance policy for their grandchild. That loan can be structured to be dramatically discounted upon the grandparent’s death, thus cutting state and federal estate taxes. This arrangement allows the insurance policy to be free of taxes all the way down to the grandchild.
See the InvestmentNews slideshow with photos here.