It is remarkable to see how far the markets have come from their March 2009 lows. As I write this article, the S&P 500 has appreciated almost 80% from its lowest point during the economic crisis. Accompanying the recovery in equity prices is a renewed level of client confidence–and a desire to resume financial planning that had fallen by the wayside. Tax planning, in particular, is poised to be a source of fresh opportunities for wealth management practices during the recovery.
For many, tax planning in 2008 and 2009 was an exercise in determining which losses to harvest from positions that had been decimated. 2010, however, ushered in something that many of us hadn’t seen in some time–capital gains! Although we’re still in the first half of the year, it’s not too early to begin discussing strategies your clients can implement now to combat the tax changes looming in 2011. Higher capital gains taxes, higher income tax brackets, reinstatement of the estate tax, and additional surtaxes to fund government programs appear to be on the horizon. But prudent moves today can mitigate some of the expected tax pain of tomorrow.
Getting reacquainted with charitable planning
A year ago, it was difficult to engage clients in any discussion related to transfer tax planning. As their wealth plummeted, clients were more reluctant than ever to consider giving away assets in an effort to reduce potential estate and gift taxes. Wealth managers everywhere were imploring clients to transfer assets out of their taxable estates while asset values were depressed and interest rates were low. Those who took that advice last year did very well in reducing potential estate and gift taxes; those who did not heed it retained their wealth and enjoyed a feeling of safety.
Today, however, is a different story. Clients are realizing that personal wealth is rebounding and, along with it, the need to reengage in estate, gift, and income tax planning. It’s an especially opportune time to consider charitable planning, which offers an array of attractive features that no other type of planning can provide. By adding a charitable strategy to clients’ financial plans, you can offer them valuable benefits such as:
? Income tax deductions
? Reduction or elimination of estate taxes
? Reduction or elimination of gift taxes
? The ability to diversify appreciated assets in a tax-efficient manner
? An income stream for life or over a term of years
? The satisfaction of attaining charitable goals
You may be surprised to see clients who have never expressed any charitable intent suddenly become philanthropic when they learn of charitable planning’s many advantages.
The return of the charitable remainder trust