Estate Tax Planning Holds Sway, Eyes On Georgia

Tom Burroughes

5 January 2021

With the balance of power in the US Senate in a delicate position – run-off races in Georgia take place today – it will affect how much room for maneuver President-elect Joe Biden has to push through any tax hikes. At present, the Republicans hold the Senate, but results could flip that to the other side.

Even without political changes, however, advisors say they were busy in the fall and approach of winter with clients keen to sort out estate planning in particular. We continue to talk to private client advisors about what’s “hot” as a topic.

“This is a very challenging time and there are opposing forces. COVID, for many investors, hasn’t been kind and at the moment the last thing they want to do now is sell. But potential tax policy is pushing people who already were inclined to sell to do so more swiftly,” Ben Persofsky, executive director of the Brown Brothers Harriman Center for Family Business, told Family Wealth Report. “The underlying issue with taxes is that they are certainly not going down!”

At the time he spoke to us, just before the vacation break, the political and economic environment appeared less uncertain than ahead of the November election, when there had been talk of a Democratic “blue wave” with associated large tax and regulatory moves.

“What is remarkable in fact is what is not in play,” Persofsky said. “Investors are least comfortable with uncertainty. Now there is some settling down of who will be in control things will calm down.” Anxiety still remains around the US Senate race until the run-off election in Georgia has taken place. COVID’s effects on the economy also continue to create instability in the markets, he said.

In the case of certain estate-related transactions and business transitions, some individuals have sought to get these done as soon as possible before any new tax rules et come in.

The estate tax regime appears to be a concern of several firms that have spoken to FWR. In 2017, President Donald J Trump’s administration signed into law a nearly doubling the estate tax threshold to $11.18 million for a single person; and to $22.36 million for married couples. The change runs until 2025, when the rates fall back unless new legislation is enacted. The 40 per cent top rate remained. Under the current system, the executor must file a federal estate tax return within nine months of a person’s death if that person’s gross estate exceeds the exempt amount . That estate generally includes all the decedent’s assets, both financial and “real” . It also includes the decedent’s share of jointly owned assets and life insurance proceeds from policies owned by the decedent. Tax rules allow an unlimited deduction for transfers to a surviving spouse, charity or to support a minor child.

Georgia on my mind
Georgia’s Senate run-offs could be pivotal. One run-off election pits Republican David Perdue, 71, against Democrat Jon Ossoff, 33. Perdue, a Georgia senator for six years, is up for re-election. Ossoff, who is a maker of documentary films, is up for elected office for the first time. In the second race, Republican Senator Kelly Loeffler, 50, is battling against Democrat Raphael Warnock, 51. Results of the races may not be known by end of business today. Republicans have a majority of 51 to 48 in the Senate. If Democrats win both seats they will control the Senate, because Vice President-elect Kamala Harris would cast tiebreaking votes if they arise. If Republicans win one of them, the GOP will maintain its majority.

Persofsky talked about various strategies, such as the idea of dividend recapitalization. This is where a company’s owners raise debt to take cash out of the business. This can be a good strategy to use if there is concern about rising capital gains taxes .

COVID-19 and politics have created dilemmas.

“This is a very challenging time and there are opposing forces. COVID-19, for many investors, hasn’t been kind and at the moment the last thing they want to do now is sell. But potential tax policy is pushing people who already were inclined to sell to do so more swiftly,” Persofsky continued.

The pandemic has caused some big mis-pricing that investors, such as those looking to structure assets and minimize tax, can take advantage of.

One problem, Persofsky said, is that due diligence on investments and assets has been challenged by the lockdowns and restrictions of recent months: “There is a certain amount of physical and on-site activity that is required.”

Persofsky said his workload has been high, such as in helping families to work through governance and other issues raised by the pandemic.

“People have been willing to engage in these conversations remotely,” he said. “There has been a real focus on how succession will work.”

Webinars that BBH held to address governance and succession have been well attended and received, Persofsky added. “The embrace, out of necessity, of technology and remote communication has been nothing but a blessing."