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Estate, Tax Planning Top US Family Office Priorities

Thomas J Handler

27 January 2021

Tax and estate planning will be top family office priorities in 2021 as a new US administration and Democrat-controlled Congress gets going, Handler Thayer LLC, a Chicago-based law firm, predicts in its outlook for the sector.

The grim financial math created by lockdowns adds to an already-bloated US public debt pile, likely leading to calls for tax hikes, it said. That means families will need to plan accordingly. 

“This dominant trend will be fueled by the projected $8 trillion federal deficit that is expected over the next few years attributable to the presence of coronavirus, adding to the existing $27 trillion deficit. Initial efforts will focus on taking advantage of existing tax deductions, harvesting and smoothing capital gains and utilizing existing estate and gift tax exclusions before the rules are changed and even more confiscatory provisions are effected,”  the recent note, written by Thomas J Handler, JD, PC, said. 

“Despite the impact of coronavirus and related prohibitions, family offices are continuing to increase in number globally. In fact, it appears that trend will continue in 2021 which may result in another large increase in new family offices,” Handler said. 

His comments chime to some extent with those of other private client lawyers and advisors who have told this news service that if there’s one sure fact, it is that US taxes will eventually rise, and target affluent individuals. So far, much focus has been on areas such as estate and gift taxes, types of trusts, and harnessing currently ultra-low interest rates.

On an upbeat vein, Handler’s note stated that the evolving business climate means that family offices will continue to grow and must bring their operations up to date.

“Outsourcing by family offices of all types will continue to increase as talent becomes increasingly harder to find and compensate. In particular, outside high-end technical experts with significant experience will be in high demand. The biggest beneficiaries of this trend will be investment advisors, MFOs and professional service firms,” he continued.

Handler – a member of this news service’s editorial advisory board – is blunt in his assessment of the issues ahead. “The US is waging war with itself over government regulation, individual freedoms, election fraud and fundamental policy questions. While the federal government has downloaded an unprecedented amount of stimulus into the economy already, still further handouts are currently in the works – all of which will be piled on the backs of future generations,” he said. “These stimulus handouts combined with a slow recovery of hard-hit sectors , the release of pent-up demand, continued influx of foreign capital and highly accommodating Federal Reserve policy should allow the stock market to continue to rise in 2021,” Handler said.

The note argues that family offices will continue to focus on restructuring and reorganization efforts, warning that most family office entities “are out of date”, not integrated, inefficient and attended by income tax and estate tax leakage compared with modern best-in-class standards. 

“Embedded family offices are de facto created when entrepreneurial families use their operating business employees and resources to handle their personal tax, financial or legal affairs. Such offices will become increasingly dis-favored by families and attorneys due to unnecessary tax, business and compliance risks and the inherent income tax leakage,” Handler said.

The prospect of higher taxes and “vilification of wealth” will, along with likely tax increases, increase the case of “taxpayer flight”, “aggressive tax planning” and “tax shelter efforts.”

“The global escalation of taxpayer flight will continue almost unabated as portfolios, trusts, businesses, family holding companies and individuals vote with their feet. Consequently, high tax, financially strapped states, territories and countries are being left behind for greener pastures in financially solvent, low-tax or no tax, more conservative jurisdictions,” Handler said.

“The expatriation and renunciation of citizenship by US taxpayers is likely to explode during President Biden's term, particularly as confiscatory income tax, social security and wealth taxes are considered. Following the experience of European countries that imposed a wealth tax, the record-breaking levels of expatriation and weak economy throughout former President Obama's terms of office may even be eclipsed,” he added.