How New Legislation Could Threaten Your Estate

Transcript: 

Hello everyone, I'm Mike Hengehold. Because of pending legislation, I am coming to you today with a call for action to help you reduce the taxes on your children after you die.

Not a fabulously happy topic, but an important one. On Tuesday, the Senate passed a $ 1.2 trillion infrastructure bill. When all the votes were counted, there were 19 Republicans that voted for the bill, along with all the Democrats, and in the mix of Republicans was Mitch McConnell, the Republican leader. The passage of the bill was surprisingly bipartisan by today's standards, and so it's gotten a lot of fanfare. And for all that fanfare, though, there's still quite a bit of sausage making to be done. By way of example, Speaker Nancy Pelosi at the House has vowed that she won't even allow the bipartisan bill to come up for a vote unless the Senate gives her a much larger $3.5 trillion social policy package as well. Now, the second bill, will almost certainly include a variety of tax increases, which will be a nonstarter for the Republicans, and will no doubt conjure unanimous Republican opposition. And it's also going to make it difficult for some of the purple state Senators to support the bill in its original state. And of course, that's where the sausage making will come in in order to hang the Christmas ornaments on the bill so that they can get all the Democrats to support it. Because it's going to be passed by a very thin margin, to avoid filibuster and to be able to pass, the Senate leader, Chuck Schumer, has to invoke a process known as Reconciliation. Now, Reconciliation is used exclusively with financial bills that have to be passed through the Senate if they want to do that with a simple majority rather than what the typical 60 vote majority that they that the Senate typically uses for traditional non-financial legislation. Because of the way reconciliation works, Democrats won't need any Republicans to pass the bill, but they will need all of the Democrats to fall in line. The the largest part of the bill, probably more than 10% of it, is being directed to what we would all think of as traditional infrastructure. And of course, this has been a lot of the discussion you've heard in the news media about whether this is really an infrastructure bill or not. Of the $1.2 trillion, about $110 billion is going to roads and bridges, and the balance is being divided among several very worthy projects, things like power grids will be getting a lot of money, railroads, broadband is a big part of this, water systems (because some of our water systems are a hundred years old), public transit, airports, environmental projects obviously, shipping ports, I think I probably said airports, waterways, electric cars, battery development, things of that nature, and road safety because they're finding the roads are decaying faster than people expected because of extreme weather and so forth, and so they need to think about that.

Okay, that's the bill in a nutshell. So, why is a financial planning and tax firm interested? Why do we care? Phase two of this plan is going to come with significant tax increases. Everybody appreciates that. Obviously at HCM we have the responsibility of helping you minimize your lifetime tax burden to help optimize your lifestyle in retirement, and also to help fund the legacy plans you have for your children and your special interests. Now people think of this as income taxes, and of course the way it's being advertised is it's only going to affect the wealthiest people, and I believe is going to be the case. From an income tax perspective, families that don't make over $400,000 are probably not going to see any increase in their income tax. However, there are also inflation and legacy tax consequences here that will potentially reach down and affect regular people, families that are not considered wealthy. We are most concerned immediately about the possibility of the elimination of stepped up basis because this would impose a tax where none exists today. This change would affect inheritors, so your children, inheritors of appreciated assets such as a parent's home, a stock portfolio, even if the values are relatively modest. Now, the practical bottom line to all this is that if this law is passed later this fall, estate planning attorneys are going to be very busy. My friends are already telling me that they're canceling Christmas vacation plans because of the expectation that they'll be working around the clock at the end of the year. In any event, it may be difficult or impossible to make modifications to your estate plan if you wait until the end of the year. Now, I know that nobody likes to think about their own demise, but if you have appreciated assets or if you believe you will have appreciated assets in 20 or 30 years that you want to pass to your family without leaving them a tax bill to go along with it, this is a plannable event and you should be acting now. We will certainly have more about this as the legislation develops. We know very little now, but we wanted to get this message out just as a reminder while your estate planning attorney may be available to help and answer questions.

Certainly, if you have any questions, feel free to give your HCM or HG advisor a call as well. That's all for now. We will be back as this develops. but thanks for watching everybody. Bye bye.

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Mike Hengehold, CPA/PFS MST RICP® Mike is the Founder and President of HCM Wealth Advisors. Over the last 30 years, he’s provided financial planning guidance to a myriad of families to help them realize their financial dreams. Mike is an avid homebrewer and animal lover, and when he’s not at work you can often find him on the golf course working on his short game.