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Private Wealth's Perfect Storm

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(Wednesday, August 18, 2020; 7:30 PM EST) Amid the Covid pandemic, changes in tax, financial, and economic arenas have created a deluge of added complexity  for advisors managing private wealth. Here's an overview of the abrupt change in conditions now battering private wealth, which, when taken together, amounts to a "perfect storm:"

Tax Policy. Budget shortfalls across the states as well as at the federal level are expected to result in steep hikes to state and federal income and transfer taxes.

Taxable Estates. For individuals with taxable estates, the current exemption of $11.58 million from estate and gift tax will be cut in half January 1, 2026. However, the exemption amount could be cut much sooner, depending on the outcome of the November 3 election. Changes in tax policy increase  the downside risks of failing to plan. While 2026 may sound a long way off, preparing now to maximize annual gift-tax exclusions, charitable donations, and appropriately tailored  trusts to accomplish your goals can ensure a lasting legacy.

Lowest Rates In Decades. Every month the IRS releases the minimum  interest rates you are permitted  to charge on  loans to family members, trusts and other related entities. With this  "applicable federal rate" currently at less than 1%, loaning assets may be a savvy way to transfer wealth to the next generation for buying a home, starting a business, or making charitable bequests.  The loans are sometimes part of a plan to transfer a family business, or support children with special  needs. With the pandemic potentially lowering the value of real estate and business assets, and causing frequent stock market volatility, optimizing low interest rates to make intrafamily loans is suddenly a more viable solution to reducing taxes and enhancing legacy planning. 

Liability Explosion. With tenants more often unable to pay rent, and small businesses facing financial difficulty, landlords and business owners are suddenly facing an explosion in their liability exposure. Asset protection strategies to mitigate personal liability exposure in the event of a setback requires preparation before a problem arises or facing a legal challenge. 

The Covid pandemic abruptly changed tax and financial conditions affecting estate tax and asset protection drastically, and this perfect storm requires proactive engagement of family members as well as advice from tax, legal and financial professionals. Please contact us with questions about your personal situation. 

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This article was written by a professional financial journalist for William Howard & Co. Financial Advisors, Inc. and is not intended as legal or investment advice.

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