Perspective | Vol. 1 Issue 1 | Fall 2021

Tax Planning continued...

The Joint Committee on Taxation has estimated that the 2022 gift, estate, and GST exemptions would be approximately $6,020,000. Those wishing to utilize the higher exemptions should do so before the end of the year. No changes to the income tax rules that allow unrealized capital gains to go untaxed at death (the “step-up in basis” at death remains). Valuation discounts would be disallowed, after the enactment date, for the transfer of interests in an entity that owns passive assets not used in an active trade or business (raises $20billion). Passive or “nonbusiness assets” described above would be treated and valued as if the asset was transferred directly to the transferee and will ignore the implied entity level transfer. For example, a transfer of 35% of a person’s Limited Liability Company (LLC) units of an LLC holding “nonbusiness assets” would be treated as a transfer of 35% of the assets of the LLC, and no valuation discounts would apply. Grantor Trust Rule Changes The ability to use Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs), and other Grantor Trusts would change considerably under the new provisions (raises $7billion). Effective date: The changes below will apply to: - Trusts created on or after the “enactment date” and - For the portion of any trust before the “enactment date,” which is attributable to a contribution made on or after the “enactment date.” - The “enactment date” is generally considered the date signed into law by the President. Grantor Trusts that are created or receive contributions after the enactment date will be included in the estate of the grantor at the grantor’s passing. There will be an available reduction for the amount of taxable gift(s) made to the trust during the grantor’s life which effectively results in the appreciation being included.

Any distributions other than to the grantor or the grantor’s spouse from such Grantor Trusts will be treated as a taxable gift by the grantor, with the same reduction for the taxable gift previously made to such a trust as referenced above. Sales or transactions that occur after the enactment date between a Grantor and a Grantor Trust will be treated as a taxable event, and gains will be required to be recognized as such. Trusts created and funded before the enactment date would be exempt from the above provision. Other Miscellaneous Proposals A 5% surtax would be applied to individual taxpayers with a modified adjusted gross income o f more than $5,000,000. This would apply to all income for tax years beginning after December 31, 2021 (raises $127billion). Amends section 199A by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return (raises $78billion). Limitation on Excess Business Losses for Non- corporate Taxpayers (raises $167billion) Extends the revenue raiser in the American Rescue Plan to permanently disallow business losses beyond the taxpayer’s business income. The provision currently applies until 2027. The change makes the provision permanent. Modifications to Wash Sale and Disguised Sales rules (raises $16billion) including cryptocurrency transactions to treat cryptocurrency the same as other financial instruments and prevent taxpayer abuse of the rules. So what does this mean for you? During waiting periods and times of uncertainty, staying focused and keeping things in perspective is important. The proposed tax changes still need to be deliberated and negotiated. They must get the majority vote in each house of Congress to pass legislation and may not even become law.

We understand there is a sense of urgency surrounding making necessary changes to maximize your wealth planning objectives. Rest assured that we are prepared for any legislation changes that may be coming in the future.

The team at Spectrum will continue to provide innovative and practical solutions to any complex issues that may arise and create ways to implement effective plans to ensure your financial goals are met.

Works Cited 1

Spectrum in the News

At Spectrum, our expert advisors are recognized as thought leaders in the wealth management industry and are frequently invited to contribute their thoughts, opinions and knowledge to nationally recognized financial news sources. Featured Article: The Wall Street Journal | June 28, 2021 | Leslie Thompson Persistent Advance in Stocks and Commodities Shows Investor Confidence Broad gauges of market performance are surging together in a way few on Wall Street have ever seen, masking volatility under the surface Leslie shares her thoughts on recent market activity and the large technology companies she is favoring. in-stocks-and-commodities-shows-investor- confidence-11624819947

Bloomberg | June 17, 2021 | Bob Phillips Bank EFTs Rake In $1.7 Billion After Fed Revives Value Rotation articles/2021-06-17/spdr-s-p-regional-banking- daily-inflows-932-1-million?sref=81ZfsQPj GOBankingRates | August 19, 2021 | Leslie Thompson Inflation Winners and Losers: Who Benefits When Inflation Rises? economy/inflation-winners-losers-who-benefits- when-inflation-rises/

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