Banking

Advisors to the wealthy are fielding a frenzy of calls from clients worried about estate planning and taxes. Here’s how they’re navigating the chaos.

  • Between the pandemic and election, 2020 was a chaotic year for advisors to the rich.
  • Now wealthy taxpayers are in the crosshairs of a Democratic administration and Congress.
  • Advisors told Insider how they are bracing for changes that could upend estate planning.
  • See more stories on Insider’s business page.

Charity Falls, a senior wealth strategist at Union Bank, says her job is to address anything that keeps her high-net-worth clients up at night.

Over the past 13 months, that list of things has gotten much longer.

After her San Diego office went remote in March of last year, business was quiet at first. “It was like a frozen panic,” she told Insider. “Then it went crazy.”

Clients, fearing both COVID-19 and potential tax changes by a Biden administration, raced to make estate-planning changes. With the rollout of PPP as well as the enactment of the CARES Act and the SECURE Act, Falls worked day and night to follow developments and keep clients updated.

Advisors to the rich on estate planning and taxes told Insider that 2020 was the most chaotic year of their careers, and 2021 will also be a challenge.

With a Democratic congress and president, high-net-worth taxpayers are in the crosshairs. There are several concerning proposals, such as the STEP Act, which would tax capital gains on unsold assets at death, and the For The 99.5% Act, which would do away with valuation discounts on asset transfers. Biden’s reported plan to nearly double the capital gains tax for the wealthy is just icing on the cake.

“Every time there are estate and gift tax changes, my phone rings off the hook,” Falls says. “These new proposals in Senate would completely upend estate tax planning as we know it.”

‘Call me in two months, and 90% of what I said will have changed’

Last spring was a “sobering time” for Edward Renn, a partner on law firm Withers’ private client and tax team who is based in Greenwich, Connecticut.

“I thought the economy might totally shut down and plunge in terms of stock market values and assets values,” Renn told Insider. Some of his clients wanted to take advantage of the market dip, while others were alarmed like Renn, asking if they should sell their entire stock portfolio.

He worked 60- and 70-hour weeks for the first four months of the pandemic between dealing with clients and educating the firm’s accountants on the stream of new legislation at least two times a week. Many clients who owned businesses applied for funds from the Paycheck Protection Program (PPP), which extends loans to businesses in order to incentivize keeping workers on payroll. The updates to PPP were an added burden, multiple advisors said, especially the changes to eligibility for loan forgiveness made after loans were already extended.

“Only part of the problem is the number of pieces of legislation we’ve been dealing with. The IRS and the SBA have also modified programs over time,” Renn said. “The PPP loan program that was announced on March 27 wasn’t the PPP loan program we had at the beginning of May, and it wasn’t the PPP loan program we had in the fall.”

More than a year after the introduction of PPP, the confusion hasn’t ended. Phil Drudy, New York tax practice leader at accounting firm Mayer Hoffman McCann, does three times as much consulting work when compared to compliance as he did before 2020.

“I don’t go a day where I don’t have at least one conversation about PPP loan forgiveness and the employer retention tax credit with a client or one of my partners,” Drudy said. “Whatever I told you today, if you call me in two months, 90% of what I said will have changed. That’s the world we live in now.”

‘These proposals would upset some basic principles we’ve had in the tax system for decades’

The craze of filing PPP loans bled into the turbulent election season, giving advisors little break. Clients are typically more anxious during presidential election years, but with a Democratic Congress and president, it became much more likely that there would be new tax laws that targeted the wealthy.

“Once everyone finally began to acclimate to this new normal, the election happens and that started a whole new frenzy of calls regarding the new administration’s tax proposals and what that means for them,” Falls said.

Renn thinks that given the slim Democratic majority in the House and no room for error in the Senate, it is unlikely that the more “revolutionary” tax proposals such as the wealth tax proposed by Senator Elizabeth Warren will pass, but there are other proposals that are giving his clients anxiety. For instance, the STEP Act would reduce the estate tax exemption from $11.7 million to $3.5 million. Biden’s American Families Plan would eliminate “step up in basis” at death, which allows heirs to use the market value of assets when inherited, not the purchase price, as the cost basis for capital gains.

“The proposals coming out of the Democratic Party right now, they range from mainstream tax changes to basically creating whole new mechanisms to tax wealth and upsetting some basic principles we’ve had in place in the tax system for decades,” Renn said.

‘Work doesn’t feel totally unmanageable, but we have to do things quicker now’

Matt Berquist, managing director of investment firm Intrepid Capital, has a sunny disposition. Though he and his team pulled 80-hour-plus weeks in March and April to adjust portfolios during the stock market volatility, the rest of his pandemic experience has largely been smooth sailing. New neighbors from New York, Connecticut, and Chicago have been pouring into his town of Jacksonville, Florida. A lot of them have stayed, and Intrepid has gained clients.

“Back then, you wouldn’t have guessed that you wouldn’t be able to buy a boat or put a pool in without a nine-month wait,” he joked to Insider.

But even Berquist is operating with a sense of urgency. He doesn’t think any legislative changes would go into effect retroactively, but there’s only eight months left in the year.

“A few clients did really aggressive estate planning last year. The majority of my clients are waiting to see what the proposed legislation is going to look like,” he said. “I feel like our clients need to be getting on it now rather than waiting until the last second.”

Waiting is risky, said Berquist, because it has been difficult to get ahold of estate attorneys for several months. Some are even turning down work because they can’t take on new clients.

Falls isn’t advising her clients to do anything they wouldn’t ordinarily do because of the looming legislation. (“Tax rates always change.”) That said, she has talked to clients about accelerating any sales of businesses of commercial real estate if they were already planning to in the near future. 

“Work doesn’t feel totally unmanageable, but we have to do things quicker now,” she said.

For Renn, who has practiced law for 30 years, planning around potential tax changes is not a new struggle, but the once-in-a-century pandemic added another layer of uncertainty.

“I always tell clients, ‘Live the life you want to live and we’ll do what we can to minimize your taxes based on what you want to do and what you want to accomplish,'” Renn said. “But it’s been a challenging time. Clients really need to make their own decisions. I can’t make decisions as to where the world is going to take them.”

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