top of page
Search

Death, Taxes and Chapelle

Updated: Jul 20, 2023

I just want to take a moment to thank the federal government for all the uncertainty they’ve been kind enough to heap upon investors this year. The only thing this Congress has clarified all year is that the citizenry will get to finish 2021 pondering a world of future tax pain. Sure, now that more people than ever are invested (and dependent upon) the stock market, let’s increase the long-term capital gains rate to 25% from 20%. Brilliant. Oh, and it’s part of a separate proposal, but Janet Yellen wants to see what’s in your $600 checking account because…?


_____________________________________________________________________


It’s what we have been inundated with since Sept. 13th; that’s the day when Democrats in the House of Representatives released their 880 page tax plan.


Thank God that that the $3.5 trillion spending and tax increase proposal has been increasingly contested by certain Democratic lawmakers whose support is needed if it’s to become law. While it’s extremely likely that some items, both on the spending and tax increase sides, will be pared back or scrapped, nobody knows precisely which ones, and as we draw closer to year end, there have been more questions than answers as the new proposals continue to evolve.


Along with increasing the cap gains rate, Dems have proposed moving the top individual income tax rate to 39.6% from 37% along with a 3% surcharge for individuals with modified adjusted gross income over $5 million. They’ve proposed doing away with backdoor Roth conversions, and they want to curb the 20% 199A deduction for small business owners.


Even with all of that, there are two particular proposals concerning estate planning that concern wealthy investors the most: One proposal would effectively kill off the GRAT (grantor retained annuity trust), and the other would slice in half the income levels at which the 40% estate tax would kick in.


  • With a GRAT, the grantor puts assets into the trust in exchange for annual annuity payments while the assets continue to grow tax deferred and then go to heirs free of estate and gift taxes. By making the annuity payments tiny, investors can shift massive amounts of wealth out of their estate without the impact of transfer taxes. Dems want them gone by January 1st.


  • Currently, estate taxes apply once an individual has $11.7 million in assets ($23.4 million for married couples). The Democrats’ tax proposal would slice those exemptions in half, so around $6 million and $11 million, starting January 1st.


In other words, if you want to set up a GRAT to reduce estate taxes, the window of opportunity is limited. Like, it’s now.

_____________________________________________________________________


In our May 15th Insights, we recommended value-oriented cyclical stocks, especially in financials and energy. Since that time, the U.S. equity markets have been driven almost entirely by cyclicals, but that hasn’t translated into broad market gains. Energy and Financials, far and away the two best-performing market sectors over the past five months, account for just over 13% of the S&P 500, which hasn’t been enough to overcome the combined 40% allocation to two of the worst-performing sectors-- tech and healthcare.


I still think energy and financials have room to run, but we added big box retailers to our list of faves last week here in Insights and really like them, too. Then again, Chapelle’s on Netflix this week, which my mom thought would be impossible after his last SNL appearance, so I suppose we may as well just call for the end of the planet.


For disclosure information please visit:

Recent Posts

See All

So Far, So Good

So far, so good, although many things could change very significantly very quickly.

Comments


2065 San Elijo Avenue

Cardiff, CA  92007

© 2021 RG Bar Investment Group

Brokerage and investment advisory products and services, are offered through Wells Fargo Advisors a member of FINRA and SIPC. For those persons inquiring from states where a specific associate is not currently securities and/or insurance licensed, the associate will not transact business in that state or provide follow-up individual responses, until after the associate obtains the appropriate registration in the applicable state.

The information provided should not be relied upon in isolation for the purpose of making an investment decision. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. Prior to making any investment or financial decision you should seek advice from a financial, legal and/or tax professional and consider all the facts and circumstances of the investment. The opinions expressed and material provided are for information purposes only and is not an offer, recommendation, or solicitation of any product, strategy or transaction. Any views, strategies or products discussed may not be appropriate or suitable for all individuals and are subject to risks.

Investment and insurance products offered are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.

Member FINRA/SIPC

 
This information is intended for use only by residents of the following states:
AZ, CA, CO, DE, FL, HI, IA, GA, IL, MA, MO, MN, NY, PA, SC, TN

 

bottom of page