Naught Quiet on the Tax Planning Front – Making Last-Minute Moves in a Most Uncertain Environment

Naught Quiet on the Tax Planning Front – Making Last-Minute Moves in a Most Uncertain Environment

The last year or more, I’ve been writing about President Joe Biden and the Democratic Party’s efforts to raise taxes on the wealthiest Americans.

We have considered innumerable proposals, from the moderate to the esoteric, followed the meanderings of legislative gambits. I have presented the news and tried to help planners and clients prepare for the shocks that will certainly appear on the taxation, estate, and investment planning fronts come the New Year.

Well, you can scratch all that, readers. Little has panned out as indicated.

In college, back in the late 70s, I had a particular professor, Dr. Thomas RW, let’s call him. His forte was American intellectual history, winding from Jefferson and Paine to Emerson and Thoreau, wending through Du Bois to Arendt, with longs stops and spur lines in between. His twice-weekly lectures spanned 90 minutes, in free form, no notes. It took backbone and caffeine to endure it.

Not at all infrequently, he’d reach the 45 minute mark, and say: “No – scratch all that. Take a short break and I’ll start again.” I’ve heard coeds scream, literally; stout college athletes slump weak in misery, defeated; stormed out myself to the Union for Budweiser, getting tanked up to face the raw punishment. Oh, the classical days of the untrammeled intellectual! Yet four decades later, I still ponder the mystery: what was he blathering about?

Yet TRW was a master at teaching the craft of writing and editing – I have a career on his efforts. We made friends then, remain so. He is a true gem of humanity, but what a confounding madman.

You’d think he was a legislator. This all took place at the Catholic University of America, in Washington DC, during the least Deuteronic years of my life. TRW taught another engaging, baffling course on War Literature. We read ‘All Quiet on the Western Front’. I’d never realized the piquancy of its pastoral imagery until TRW showed me the signs – I thought it was all about grenades, snatching geese, and stealing passionate pleasures with mam’zelles.

It’s curious to recall, because the other night, I was watching the 1979 version of Remarque’s great novel, starring John Boy Walton, looking un-apple pie in his pickelhaube helmet, and fat old Ernest Borgnine as grizzled grunt Kat. Photographic evidence suggests trench warfare was not conducive to stoutness, but I suppose the film’s low budget had no room for dietician or trainer.

One scene in the film matches our moment. When the young German boys, formed into a replacement platoon, grey lumps of coal to feed the Western Front’s furnace, arrive at the war, wily Kat is there to greet them. ‘Und so’, the old hand explains then-current affairs to the lads:

“In training camp they filled you full of fancy information on how to be a soldier. We’re going to work hard to forget all that.”

That’s where we stand today. If you’re striving to make last-minute decisions to mitigate taxes for next year, I must report that all you’ve been taught, those things that I warned you, no longer apply. The situation is so fluid, I’m afraid even this statement may not be trustworthy. Let us proceed where we can.

I’ve written repeatedly, as recently as November 1 (Woes for the Wealthy – If Grantor Trusts Fall, Life Insurance Could Become Part of Taxable Estates) that the grantor trust was dead on its feet. As House and Senate Democrats struggle to reconcile their disparate budget bills, I note that the proposal, nasty old Sec. 138209 of the House Ways & Means Committee taxation plan, which aimed to include assets in grantor trusts created after January 1, 2022, in the grantor’s estate, is now missing in action.

Readers, I am breathless. If this situation stands, a grantor trust, a wonderful way to shield assets from inclusion in one’s taxable estate (including life insurance policies, which are often worth millions and can easily push an estate beyond the exemption threshold), can still be formed in the new year, at one’s convenience.

This suggests no need to launch panicky charges to create a complex, hard to revoke structure in the last two or three weeks of this year, before the originally suggested cutoff date. What a relief. Unless this is wrong.

One Capitol Hill commentator called the Senate Democrats’ current budget and tax proposal “a place holder.” Hard negotiations are underway between the two Houses of Congress to create a bill they can sell to constituents and pass before Christmas, their self-imposed deadline. If the grantor trust stays out of their crosshairs, fine. If not, recall that earlier deadline: January 1, 2022. Wealthy readers who lack a grantor trust and want one should pick up the hot line, call their estate planner, and issue a rapid call to action today.

One Democratic proposal does look like gelling: cutting the federal estate and gift tax from today’s $11.7 million per individual to around $5 million. This early ‘sunset’ of the happily elevated exclusion leaves the wealthiest Americans just a few weeks to dispose of excessive assets.

Today’s rational response: if you want to reward junior or princess, don’t wait for the day you won’t be there to see them smile, or cut you deader, because, I don’t know, the four or five million you left them is so paltry. Don’t miss the great ingratitude show: grant them their inheritance today.

Contrarily, if you fear higher taxes next year, you might hold off on charitable giving until 2022, to benefit from the credit in a higher-tax environment.

This year has been terrible for us simple souls, who seek only to provide useful info to people, professionals, and individual investors who hoped to prepare for President Joe Biden’s transformative new tax regime. I mean these words neither as an accusation nor a confession. Estate planning is not an adventure for those who depend on it. Yet we struggle against Frenchy Joe, try to escape his shells, for… oh, I’m channeling ‘All Quiet’, now.

The real problem is this: successful estate planning requires a predictable future – or as close as we can get. Yet today, after months of vast newsflow, we face a sudden silence – ‘Im Capitol Hill Nicht Neues.’ But we are not helpless.

Estate and tax planning teams, as ever, are eager to toil and trouble, stir up near-mystical solutions to your arcane estate issues. They’re gasping to hear from you, just a web search away. Tarry not, now, because you know, tickety-tock goes the clock.

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