Protect Wealth While You Can: Biden-Harris Blue Wave Unleashes Now-Or-Never Planning Tsunami

We’ve seen this before. When the tide in Washington turns, taxes go up and the ability to shield clients from the IRS is no longer trivial. Get ahead of the crowd by building capacity NOW.

There’s still two weeks to go before the election but it’s clear that taxes have hit bottom no matter how the votes stack. If you haven’t already figured out how to protect your clients, it might be too late.

Estate planners are already busy. Trust companies only have so much excess capacity and limited opportunities to staff up fast, especially in a pandemic. 

Many have been lulled into a false sense of comfort with the status quo. For years, taxes mattered less and less, pushing tax planning out of the spotlight.

But when everyone realizes that this is as good as it gets (and it only gets worse from here), a lot of money is going to crowd into tax havens to lock in the best treatment before it goes away.

I hope your best clients already have structures in place that remove assets from their taxable estate and shift earned income to a gentler transaction category like capital gains. You should already have a trust company, an estate planner and a business consultant on your side.

Don’t wait for the election to show you which way the wind is blowing. By the time the votes are counted, the best partners will be overloaded. They won’t be able to help while the planning window is open.

Winter is always coming

Whatever happens in the Senate or the White House, Democrats are almost certain to keep control of Congress. That means the will for another round of cuts is simply not going to be there before 2022.

Nancy won’t cut. She wants to spend and recognizes that she’ll need to find federal revenue to even pretend to follow the “pay as you go” budget rules. The responsibility to find revenue looks more urgent now that the Senate has started worrying about the cost of COVID stimulus. 

And if the presidential polls are anywhere near accurate, Kamala Harris will be one heartbeat away from following through on her debate threat: the tax cuts will roll back in full, forcing the rich to hand the IRS up to 43.8% of their income.

She’s looking to take from the rich, presumably in order to give to the poor. Depending on what happens in the economy as the 2020s lurch forward, there could be a lot of poor people for your clients to support.

Offshore havens were essential in the 1970s when a tax break for the wealthy meant no longer having to hand over 70% of your income. Factor in the drag from inflation and sluggish market returns and anyone who could offer a better deal became a trusted advisor for life.

Inflation is another factor here. While the Fed’s heroic efforts haven’t spawned hyperinflation yet, they also haven’t done much to feed real economic growth. The end result is still a drag on real performance.

It doesn’t matter whether wealth gets sacrificed to the IRS or inflationary forces. The only difference is that politicians can be bargained with to get a better tax rate, but the Fed has capitulated to at least 2% inflation in the long term.

And we don’t know how high that rate will spike before the economy is strong enough to bear even symbolic tightening. That risk is tied directly to the dollar.

It’s probably time for offshore havens to make a comeback, not so much as a tax avoidance move given advances in technology and surveillance, but as a currency hedge.

Inflation will take a smaller bite on some currencies than others. The important thing is making sure the rich don’t get poorer because they parked their wealth in the weakest money available.

We’ll talk more about this in the coming year. For now, inflation is hypothetical but taxes, like they say, look inevitable.

Refresh your sense of how tax-sensitive investing works. Even if long-term capital gains rates stay where they are, Kamala’s threatened 3% reversion on the short-term front makes active harvesting more important.

If income taxes revert to pre-2001 levels, this side of the portfolio manager’s job is absolutely essential. You can’t ask clients to give up 70% of their returns simply because you didn’t hold on for a year.

Muni bonds and other tax-sensitive assets are already becoming interesting again for the first time in decades. They don’t pay much, but in real terms the yields are still better than Treasury debt.

And when returns get compressed, it gets hard to justify advisory fees at all. Every basis point you can claw back helps you demonstrate added value. 

One of the many reasons I love trusts for retail wealth management is that reducing the lifetime tax liability creates an objectively better outcome for your clients . . . and then when you’re written into the trust documents as the advisor of record, retention is trivial.

The trust won’t fire you because it got a hot referral from a friend on the golf course. It won’t get scared. And it won’t need reminders that you’re actually worth your fee.

For generations, that account belongs to you and your successors. From the advisor’s perspective, it’s the next best thing to guaranteed business, especially when the economy turns sour and the knives come out in Washington.

It’s up to you to serve that account to the best of your ability. Obviously, when it prospers, you prosper as well. When it starves, you suffer.

But the time to have the conversation is when the world looks great, taxes are as low as they’re going to get and inflation is negligible. By the time you see the crowd heading for the exits, it’s too late to get the best seats. 



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