Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

Looking for Opportunity in Change

By Bill Beynon | July 16, 2020

“If a window of opportunity appears, don't pull down the shade.” - Tom Peters

As we approach the upcoming election, we surely will hear many campaign promises, policy thoughts and plans of action from both sides of the aisle.

Every day I review the financial and tax news of the day and try to see how it could affect our clients. Sometimes the news brings potential challenges or barriers to our planning. Other times, we find opportunity.

If we focus on the recent news related to financial and tax matters, it is hard not to be overwhelmed by news of the Covid-19 virus and the economic impact that it is having around the world. We are inundated with data points on positive tests and state infection and death rates. Progress on a vaccine provides hope for a time without masks and social distancing.

The news also has focused on the unprecedented stimulus provided by Central Banks around the world, led by the US Federal Reserve and Treasury. Markets have likely benefited from historically low interest rates and liquidity that has been injected into the system, which we believe has helped markets rebound from March lows.

Pundits debate the validity of the data and policy direction. Like it or not, we live in a politically divided world. I often think that our elected officials could, and do, disagree on just about any topic. This certainly is accentuated in an election year.

As November 3rd approaches, we will continue to hear the policy ideas from candidates. This is not a new phenomenon. Each party will try to differentiate itself from its opponents. Some of the campaign promises will be long forgotten, but many will come to fruition. In our view, most likely, change will come in the form of tax reform. President Trump and the current Congress successfully enacted new tax legislation in 2017 with the Tax Cut and Jobs Act of 2017 and again in the SECURE Act last year. Although some of the provisions of President Trump’s plan will expire at the end of 2025, if we have a change in administration, it is likely that changes could come sooner.  Joe Biden has released his tax plan that put the Trump tax cuts squarely in his sights. Below is an excerpt from the Biden/Sanders plan.


We will work to reform the tax code to be more progressive and equitable, and reduce barriers for families who qualify to benefit from targeted tax breaks. Our tax system has been rigged against the American people by big corporations and their lobbyists, and by Republican politicians who dole out breaks to their biggest donors while leaving families to struggle. A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes. Corporate tax rates, which were cut sharply by the 2017 Republican tax cut, must be raised, and “supply-side” or “trickle down” tax cuts must be rejected. Estate taxes should also be raised back to the historical norm. - joebiden.com

Regardless of your political affiliation, the proposed tax plan put forth by Joe Biden will likely impact your planning.

Highlights of the the Biden tax proposal:

  • Reinstate the 39.6% tax rate for top earners
  • Increase the Capital Gains tax to 39.6% above $1,000,000
  • Increase corporate tax rates to 28%
  • Unlimited 12.4% Social Security payroll tax on earnings above $400,000
  • Reinstate the ability to itemize deductions on state and local property tax and mortgage interest
  • Cut the Estate Tax exemption in half – Reducing the amount that can pass estate tax free
  • Eliminate the “Step Up in Basis” - Capital Gains would be levied on assets at the time of transfer at death

As I have studied the proposed plan put forth by Biden, what really caught my attention is the potential impact on estates. There are three major factors to my concern:

1. Reducing the unified credit in half, puts many more families in the size range that will be subject to an estate tax.

2. The elimination of the basis reset or “step up in basis” potentially could affect every family.

3. The increase in the capital gains top rate to 39.6% substantially increases tax cost of transfer.

Under the current proposal, it is a triple threat. A lower threshold for estate tax will subject many more estates to a 40% tax. Taxing the unrealized gains of long-term assets adds a second layer of tax for estates. Increasing the tax on the gains to 39.6% will potentially erode millions in estate value. To make matters worse, imagine the increased legal and accounting costs associated with basis reporting on long held family assets.

If you have read my earlier piece, Silver Linings, you will know that I try to find opportunities in times of stress.

So, what do we do?  

Opportunity Just AheadStart now, don’t wait. Now is the time to analyze your estate and the potential tax and liquidity risks posed by the proposed changes. Consider the opportunities of using your unified credit now, locking in the current exemption limit before a potential reduction. Consider selling assets and locking in lower capital gains rates. Review your retirement plans. Review your IRA beneficiary designations. Evaluate strategies such as a Roth conversion or leveraged IRA plan.

There are many gifting strategies that can lock in your exemption and potentially save millions for your heirs.

CWA Asset Management Group, LLC is an SEC-registered investment adviser, doing business as Capital Wealth Advisors (“CWA”) and as blueharbor wealth advisors.  This material is for informational purposes only, as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. Any opinions expressed herein represent current opinions as of the date of publication only and may change based on market or other conditions.  This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here.   Certain information herein has been provided by and/or is based on third-party sources and, although believed to be reliable, has not been independently verified, and CWA is not responsible for third-party errors.  No representation is made with respect to the accuracy, completeness or timeliness of information or opinions herein and CWA assumes no obligation to update or revise such information or opinions.
Information presented is for educational purposes only and should not be considered investment advice or an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  All investments involve risk, including risk of loss and are not guaranteed.  Past performance is no guarantee of future results.  There can be no guarantee that CWA will achieve any specific investment objective or level of performance.  CWA does not offer legal or tax advice.  Please consult your investment or tax professional for additional information concerning your specific situation.  Specific companies, industries or securities described are meant to be illustrative of investment style only. Additional information regarding CWA including fees, expenses, and risks of investment, is contained in CWA’s investment advisory agreement, its Form ADV, Form CRS and related disclosure documents and should be reviewed carefully. CWA’s ADV 2A and Form CRS can be accessed via https://adviserinfo.sec.gov/.
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William Beynon
President & CEO

Co-Author of Wisdom in Wealth.

John Walker
Executive Vice President | Private Wealth Management

Co-Author of Wisdom in Wealth.

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