Broker Check

Mid-Year Planning Opportunities, Part 2

| August 17, 2021

We continue our two-part series mid-year planning opportunities. Last month, we covered reviewing retirement plan contributions and the new enhanced child tax credit.

Manage assets in light of potential tax changes

There have been many proposed tax changes. While we don’t advocate reacting to rumors, or legislation that is still in debate, there are a few actions you may want to consider taking so you are well-positioned if and when change comes.

One of the more impactful proposed changes of the Biden administration and their American Families Plan (AFP) is an elimination of a step-up in basis at death for gains over $1 million (single) or $2 million (joint). While there are some proposed exclusions for family-run businesses and farms, this could have significant impact on legacy real estate or highly appreciated investments like company stock.

Another proposed change of the AFP is an increase in the tax rate on long-term capital gains over $1 million to ordinary income tax rates. Combined with the 3.8% Net Investment Income tax, large long-term gains could be taxed at a rate as high as 43.4%. Investment properties and large non-retirement accounts should be reviewed more closely in light of these potential changes.

Preliminary discussions with a trusted financial advisor, your tax professional, and your estate attorney should take place to review your specific circumstances and determine whether realizing some of the capital gains now under current law might make sense, or looking at charitable vehicles like Donor-Advised Funds or Charitable Trusts could be valuable to you for capital gains and/or estate tax purposes. 

Estate Planning Review

Speaking of estate planning, with children going off to college this fall, it may be a good opportunity to review your estate plans. For those with children, your estate plans may be old and still have details about the care for minors. As your children age into adulthood, it’s a good time to update your estate documents to not only adapt with you as life changes, but also be sure the documents are up to date according to state laws.

Basic estate planning documents include:

  • Wills
  • Living Wills: dictates wishes for medical care.
  • Healthcare Proxy/Medical Power of Attorney: gives authority to make medical decisions on your behalf.
  • Durable Power of Attorney: gives authority to handle other affairs, primarily financial, on your behalf.

In addition, it’s important to put proper documents in place for your child upon them turning 18, thus becoming an adult under by law, so you can continue to help with doctors’ appointments and be informed of important medical records. Although your adult child is more than likely still eligible for coverage on your insurance plan, under HIPPA rules they are considered an adult and without proper authorization you have as much a right to their health records or decision-making as a stranger does: none. As part of the college preparation, you may want to consider a healthcare power of attorney. This would allow your child to name you as health care agent(s) so you can speak to health professionals if they are unable to do so.

Make sure you keep one copy of the power of attorney at home and give one to the child to keep at school. It may also be prudent to provide a copy to their current primary care doctor and the school’s health clinic. And it might be worth keeping an electronic version handy to email to a hospital or physician on short notice.

Connecting with a quality estate planning attorney in concert with a knowledgeable financial planner, is key to reviewing all of the above in the context of your overall plan, goals, and objectives. 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.