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Late to The Game

Most families have a division of duties among their members.  In my family, my wife Dana pays most of the household bills and does the laundry, I do the grocery shopping and cooking, and our daughters empty the dishwasher and take out the trash.  …But who sends out the Christmas cards?  Apparently, we have yet to figure this one out, for this year is the second year in a row that my family’s Christmas cards arrived the week after Christmas.

I used to send out Christmas cards from my business, but I stopped doing that and have just been sending family cards the last few years.  The rationale was that not all my friends are clients, but all my clients are friends, so why not just send our personal cards?

When I was sending cards from the RG Investment Group, I knew exactly who was supposed to send the darn cards.  But with the family cards, I thought Dana was going to do it, and she thought I was going to do it.  We finally realized in the second week of December that neither one of us had done anything. 




It reminds me of meeting with a couple a few years ago to construct their financial plan.  They were originally from Canada, they had lived in London for more than a decade, and they had recently moved to San Diego.  So I asked them, where would you like to retire?

At the exact same time, one blurted out, “Surrey Hills!” and the other, “Toronto!”

Now, let’s just ignore the ludicrosity of anyone wanting to retire in Toronto for a minute and focus on the fact that they obviously hadn’t ever discussed or agreed upon where they wanted to spend their golden years.  It’s not like they were in their 20’s; they were over 60 years old and had been married for 30 years!

Every household works a little differently, but having open communication about big-picture matters like this is really important.  If you run the investments in your household and are the one who primarily deals with your financial advisor, that’s fine, but consider bringing your spouse to a meeting at least every once in a while.  Maybe even your kids.  Besides serving as a good way to keep everybody on the same page, meetings with a good advisor will get you thinking about things that you might not have yet thought of.



My two daughters are fourteen and fifteen years old.  My fourteen year old is really in to competitive cheerleading, which makes me crazy.  It also makes me half-broke-- between the program costs and the travel to competitions, it runs me more than $10k a year. 

My fifteen year old has gone to NASA space camp in Huntsville, STEM camp at the Naval Academy and a field hockey camp here in San Diego for the last few summers.  This year, she wants to go on a $5,000 trip to Japan with her Japanese class from school, and she was surprised when I explained that she would have to make some choices between the four activities. 

(What I meant was that she should do an internship at Sanford Burnham Prebys and actually get paid. Wish me luck.)

So, we’ve recently had some conversations about finances with our kids. As difficult as that was, I wanted them to understand that clubbing my wallet like a baby seal is not a sustainable practice.  I explained the costs of their organized activities, I explained the (absurd) cost of a lift ticket at Mammoth, I explained the cost of getting another car for our soon-to-be driving eldest, I explained the cost of their fancy pedicures.  I explained the pressure that inflation has put on households over the last two years, and I explained that Daddy wants a boat.

I believe all but the very last point were taken to heart.



As for inflation, we’re of the mind that prices are extremely unlikely to return to pre-Covid levels anytime soon.  In order for that degree of deflation to occur, it would take a historically painful recession.  Past inflation is mostly water under the bridge for the Fed at this point, and Powell & Co. will eventually have to raise its target inflation rate.

It would have been great for the government to have engineered wage inflation to match the asset and price inflation that it caused, but alas, that was not what they did.  Not even close, which means that the average American has had their standard of living reduced by approximately 25 percent. I don’t know anybody who got an annual raise of more than 2-3 percent--  at least, not in the private sector.  In fact, while inflation has moderated, prices are still up more than 17% since January 2021, and real wages are down 3.2%.

Plus, people care about jobs, not about unemployment rates, and the total number of jobs is way, way down.  This is why (I believe) President Biden’s poll numbers are so stinkin’ low.  We have a very low employment rate even though the unemployment rate is low because people have just up and left the labor force, and that’s what people feel.  They have collectively decided that Bidenomics is bulls***.



Another reason to discuss money matters with family these days is the upcoming sunset of the Tax Cuts and Jobs Act.

The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to estate and gift tax exemptions, temporarily doubling the lifetime exclusion amount. This allowed individuals to shield considerably more assets from estate and gift taxes. However, the increased exemption amounts are set to sunset at the end of 2025, reverting to 2017 levels. The lowered estate and gift tax exemptions will have major implications for high net worth individuals' estate plans.

When the TCJA was originally passed in 2017, lawmakers built into the bill an automatic “sunset” or reversion to pre-TCJA levels for many of these key changes.  At the time, the 2026 horizon seemed distant, and optimism led planners and investors to believe that these changes would be made permanent. However, the TCJA is in its twilight, and no progress has been made to extend these changes beyond 2025.

Of course, if the makeup of Congress changes in 2024, the outcome may be altered. As each week passes, it is becoming more likely that the sunset in 2026 will happen, at least in some form. For many clients, now is the time to start preparing or face major tax and estate-planning consequences.

In 2024, the estate and gift exemption is $13.61 million per person and $27.22 million per married couple at the federal level. This means that an individual can gift or leave behind (or a combination of the two) $13.61 million for heirs without facing the dreaded federal estate tax; anything over that amount is subject to a hefty 40% tax.  

That’s a pretty healthy exempt amount, but on January 1, 2026, that $13.61 million will automatically be reduced to $5 million indexed for inflation--   the final number will probably land somewhere between $6 million and $7 million per person, or $12 million to $14 million per married couple.  If a person does not use their full exclusion through gifting before then, they will forfeit the difference between the old amount and the new.

For high net worth individuals who have not already taken advantage of the temporarily higher exclusion amounts, there is now added urgency to implement tax reduction strategies. Common estate planning strategies such as spousal lifetime access trusts, gifts to irrevocable trusts, and intra-family loans can help shield assets from estate taxation. For those who have already gifted up to the exclusion amount, excess gifts over the new ≈$6 million limit may soon be subject to gift tax.

In addition to lowering the estate and gift tax exclusion threshold, the expiration of the TCJA will also impact the treatment of capital gains at death. Under the TCJA, heirs did not have to pay capital gains tax when inheriting appreciated assets. With the repeal, the pre-TCJA capital gains rules will come back into effect. Now, heirs will need to pay capital gains tax when they sell inherited assets that have appreciated in value. This could have significant tax implications for inheritors.

The bottom line is that the sunset of the TCJA's estate and gift tax provisions presents time-sensitive estate planning challenges, so we’re encouraging families to prepare for the potentially radical changes to current tax laws. 2024 will be a good time to discuss strategies such as grantor retained annuity trusts, family limited partnerships, charitable trusts, and other vehicles that can reduce estate taxes.

Waiting until after the November elections is not an altogether prudent strategy, for it’s likely that your estate planning attorneys are going to be, well, let’s just say they might be a little busy come this December.  The timeframe is compressed enough that quick action to implement and fund these complex strategies is probably in order.

Please contact our office today to review your estate plan— we’ll help to ensure that it accounts for the latest tax law changes, that you’re properly addressing inflation, and that you get your Christmas cards out on time.

Click here to invest with Chad.

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