Each year brings a new deluge of industry information that high-performing wealth advisory teams need to digest, and 2018 is no different. For starters, the Tax Cuts and Jobs Act will have an immediate impact on high-net-worth clients and is top of mind. But the new tax legislation is not the only important development advisors should be aware of. There are a number of new trends, insights and breakthroughs coming from all angles within the wealth management industry. Below we provide a brief overview of the five most important issues we believe advisors need to know for 2018.
Tax reform. In a nutshell, most investors will experience the trade-off between lower rates and fewer deductions. The seven tax bracket structure remains in place, but five of the seven rates are lower beginning in 2018. At the same time, many deductions are limited, such as the $10,000 cap on state and local taxes, and others are eliminated all together, such as miscellaneous itemized deductions. Whether these changes result in a lower overall tax bill will depend on the specific client, but there are some strategies that could play an important role moving forward, such as the lumping of certain deductions every other year. Other customary strategies familiar to advisors such as the importance of tax-deferred growth, harvesting year-end losses to offset any capital gains, and gifting appreciated securities to charities remain in place.
State initiatives. Some states have recently increased the tax advantages of 529 college savings plans by increasing or introducing an income tax deduction. Also, the number of states that offer 529 ABLE accounts has doubled in the last year, offering families the opportunity to take advantage of a tax-free savings account for disabled beneficiaries. While 17 states including the District of Columbia still impose either an estate or inheritance tax, the exclusion in some states is the same as the new $11.2 million exclusion at a federal level, while in other states a $1 million exclusion remains. Forty-two states have enacted some form of legislation that allows a user’s representative access to their digital assets upon death or disability, but only if the user’s legal documents have been properly updated. Finally, Nevada has become the first state to pass its own fiduciary rule, while other states consider similar legislative action.