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How to Survive the Last-Minute Tax Rush

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What You Need to Know

  • House tax bill changes could have major tax implications for some of your clients, or not.
  • Given the uncertainty, many investors will wait until the last minute before deciding to make gifts.
  • One worry: Grantor trusts would be largely eliminated as an estate planning tool under the House tax proposal.

Our industry loves its buzzwords, and the term “financial quarterback” is a well-worn staple of advisor marketing campaigns. But if your business prides itself on coordinated, team-based wealth management, the next few weeks of tax change uncertainty are your chance to back up your advertising with action.

The proposals making their way through Congress depend on agreements with the Democrats, who hold knife-edge majorities in both houses. Lawmakers have kicked the can for months, but may feel rising pressure from their constituents to get a win on the board before the midterm elections occupy their attention.

If and when these high-stakes bills become law, it likely will after a flurry of last-minute concessions and dealmaking. With the facts changing so quickly, these changes could have major tax implications for some of your clients.

Or not. Negotiations may fizzle, or major changes may be trimmed from the final bill to ensure its passage. Until we know for sure, investors are either taking a wait-and-see approach or they’re scrambling to act before something might happen.

That means advisors and the professionals they work with need to be ready for anything. And it means they’re probably going to face a huge time crunch as the holidays approach.

Many financial advisors, accountants and attorneys recall working long hours in late 2012, when investors rushed to make large gifts in the fear that the then-$5.12 million estate and gift tax exemption would be reduced to $1 million in 2013.

Given the uncertainty, many investors waited until the last minute before deciding to make gifts. It is human nature to take a wait-and-see approach, especially in times of uncertainty.

Prepare for the Rush

Consider the most recent House proposal to reduce the estate and gift tax exemption from $11.7 million per individual to approximately $6 million. Worse, grantor trusts would be largely eliminated as an estate planning tool under the House proposal, effective on the date of enactment.

Not all of your clients will be affected by these changes, but don’t be surprised if your schedule fills with people who want to rush through grantor trust applications.

More on this topic

In a similar vein, Democrats are tentatively coalescing around the notion of raising the top capital gains tax rate to 25% (up from 20%) retroactive to September, along with a 3% surtax for those with an adjusted gross income above $5 million.

Things could always change, but this means clients who are trying to sell their businesses or handle other liquidity events will want to rush to their financial professionals to determine how to proceed.

Time is not on the side of these clients. But advisors are in a prime position to save them, their lawyers and their accountants from a lot of heartbreak.

When it comes to creating a grantor trust, most legal professionals will tell you that one of the most time-consuming parts of the process is explaining to the client how the tax proposals affect them, what actions are recommended, and what the client needs to do next. But if you work as a team, you can lighten that burden.

It goes without saying that advisors need to stay on top of the latest changes in the proposals making their way through Congress. If you haven’t already, consider coordinating with your client’s accountants and attorneys now.

When you meet with clients, lay the groundwork for the next steps they have to take. Advise them of the paperwork they’ll need to have in order before their next appointment, and help them manage timing expectations.

Advisories with in-house legal and accounting support are going to have an edge when it comes to the last-minute tax wrangling these clients will require. But any kind of foundational work you can do to support the other professionals serving these investors will help everyone move quickly and confidently to beat the ticking tax clock.

Your clients will see your quarterbacking as indispensable. And your efforts just might save some accountants and lawyers from grueling holiday all-nighters.


Jim Rabasca, J.D., is a senior tax specialist at Summit Financial.