Leslie Geller: Hello and welcome everybody. Thanks so much for joining us today to discuss this exciting topic Concerned Clients? Wealth Planning Strategies for Uncertain Times. I'm Leslie Geller, senior wealth strategist at Capital Group, and I'll be joined today by my colleague Anne Gifford Ewingg. Hi Anne.

Anne Gifford Ewing:g Good morning.

Leslie Geller: Before we dive in, let me cover some housekeeping.

If you look in the upper right corner of your webinar player, you'll find everything you need, including slides for today's event. We love getting your questions and comments throughout the event and we'll try to answer as many as we can, so you'll see the Q&A tab in that same upper right section of your screen. Also, just to let you know if you have any tech problems, put it in the Q&A window and our team can try to address them. So with that, let me properly introduce Anne Gifford Ewingg.

Anne is a senior trust and estate specialist with Capital Group's private client services focusing on trust, estate, tax, and personal planning.

Anne spent more than a decade in private legal practice at Gifford, Dearing & Abernathy, LLP in Los Angeles, and Anne and I came to Capital Group with really similar backgrounds. So we talk all the time. I also spent more than a decade in private practice, both in New York and Los Angeles and in our current roles we talk about the same things, but we talk about them to different people. So, I talk to hundreds of advisors each year. Anne works with high net worth individuals directly as well as their advisors. But we both hear a lot of the same questions as I'm sure you all do, so that's what we're gonna do today. We want to help you answer those questions for clients. So, Anne, welcome again.

Anne Gifford Ewing:g Thank you, Leslie.

Leslie Geller: So nice to have you here and be doing this again.

Anne Gifford Ewing:g Great to be with you.

Leslie Geller: Let's jump right in. There's so much to talk about, we're not only in a time of market uncertainty, political uncertainty, economic uncertainty, global affairs uncertainty, but there's a lot of policy uncertainty swirling right now. And in fact, we really punted on the development (laughs) of the Q&A of this section of our chat today because we wanted to let things develop and we actually couldn't, I think, have been better with the timing, because we just had this big beautiful bill-

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: ... pass in the House, last week. Was it last week?

Anne Gifford Ewing:g The 23rd. Yes.

Leslie Geller: The 23rd. So we had the big beautiful bill pass the House last week. I think much to a lot of people's surprise, but it's not law yet. There's a long way to go and the hard part of the road is ahead. So I'd love to know, instead of getting caught up in that swirl of what could potentially happen and trying to make predictions, what are the things that you guys are watching in PCS? What are clients asking you about when it comes to what's in the contents of this House bill, the legislative process, where we are and what could potentially be added in last minute if it passes the Senate?

Anne Gifford Ewing:g Sure. Lots of really good questions and this has been on our minds and our clients’ minds, really nonstop the last few years. And the, the question is what will happen to the Tax Cuts and Jobs Act, which is set to sunset or to kind of go away at the end of this year, at the end of 2025, unless some new legislation is passed to take its place and or extend its provisions. So that's what we're talking about when we're sort of talking about watching this tax legislation. And, it’s a big tax bill. There's a lot in there: corporate tax, provisions that apply to individuals, to your point. So, we thought we would for our listeners today, just do a little snapshot of-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g ... where are we right now-

Leslie Geller: Yep.

Anne Gifford Ewing:g ... with some of the highlighted topics that clients are interested in and, and their advisors are interested in. And in terms of where we're at, I think the timing of today's discussion, to your point Leslie, is interesting because we don't have a final bill yet. We really don't know what the final rules will be, but we are further along than I think many of us thought we would be at this point in time.

Leslie Geller: Especially as far as the individual tax provisions, right?

Anne Gifford Ewing:g Yes. So the House did pass a version of this bill, about a week ago, and we think that the Senate is aiming to pass, their version of the bill with whatever edits they can agree on, ideally by July 4th. So, we'll talk more about that maybe in a minute, but what are some of the topics in there that we're following? In the high net worth client space, one of the big topics has been what's going to happen to the lifetime exemption amount.

Leslie Geller: Yes.

Anne Gifford Ewing:g That unified gift and estate tax exemption amount that determines how much you can give away to loved ones, free of gift or estate tax. It's at an all-time historic high, this year at 13.99-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g ... million. And there's been lots of debate about will it be cut in half? Will it stay where it is? Should high net worth clients gift now? Well, they can. This bill raises it. (laughs) It takes it to 15 million, a nice round number and continues to index it to inflation.

Leslie Geller: And makes it permanent, right?

Anne Gifford Ewing:g And makes it permanent. Now permanent is an interesting word. (laughs).

Leslie Geller: (laughs).

Anne Gifford Ewing:g It doesn't mean it could never be changed-

Leslie Geller: Right.

Anne Gifford Ewing:g ... by some new government in a future year, but what it does mean is that it doesn't have an attached sunset date-

Leslie Geller: Yes.

Anne Gifford Ewing: ... like the current rule does.

Leslie Geller: Right.

Anne Gifford Ewing:g So that's really interesting. Some other things that are in there, the income tax rates that are currently in place under tax cuts and jobs are also made permanent. So that federal income tax kind of highest rate of around 37% is put in place. The maximum kind of deduction amounts where fewer taxpayers are itemizing now-

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... because of the current rules, all of that is made permanent. So I think there's going to be, if this goes forward-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... important qualifier, there's going to be less of the state pass-through entity discussion perhaps-

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... because a lot of that uncertainty will be removed. SALT, the state and local income tax cap on deductions has been a huge topic and there was much made if certain lawmakers were really going to die on this hill-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g ... of raising the SALT caps.

Leslie Geller: Right.

Anne Gifford Ewing:g We were at 10,000 the last few years and it's really hurt some of the coastal states that have high state income tax in particular. Right now we have an interesting compromise in the House bill of a $40,000 cap-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g ... instead of 10.

Leslie Geller: Yep.

Anne Gifford Ewing:g Which is on paper a significant change, but that cap does phase out for higher income taxpayers. So I think it would be less meaningful for higher net worth clients in those states, but perhaps be meaningful for some middle, upper middle class taxpayers. So that's kind of an interesting one to watch-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... whether it stays there or you know, continues to be changed in the senate negotiation process.

Leslie Geller: And that was really heavily debated in the House.

Anne Gifford Ewing:g Yes.

Leslie Geller: I mean we all saw the headlines about the SALT.

Anne Gifford Ewing:g Yes. That this could derail the whole thing.

Leslie Geller: Right.

Anne Gifford Ewing:g They couldn't agree on this. So, it'll be interesting to see what the Senate does, if anything with that.

Leslie Geller: And a funny little wrinkle there is that there are no GOP senators from SALT states. Right?

Anne Gifford Ewing:g Right.

Leslie Geller: Very different from the House where you have GOP representatives from these coastal-

Anne Gifford Ewing:g Right.

Leslie Geller: ... states that are very concerned with this state and local tax deduction.

Anne Gifford Ewing:g Exactly right. There's been this so-called SALT caucus in the House-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... including from Southern California where you and I sit. Young Kim in Orange County and handful of other Congress people who have really been vocal-

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... about making this a priority, not so in the Senate.

Leslie Geller: Yeah.

Anne Gifford Ewing:g So it'll be interesting. So those are some of the items that are close to staying the same.

Leslie Geller: Yep.

Anne Gifford Ewing:g You know, a, a, a little tweak here or there, but essentially extending tax cuts and jobs and making it permanent, you might say. And then there are some things that are quite new.

Leslie Geller: And that's what's interesting, you and I were talking about this earlier this morning, is that unlike other times before big tax bills have been passed, the individual tax provisions other than SALT are not the things that you're seeing be the really divisive issues.

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: At least from a public display perspective.

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: Um, what are the things that are actually going to get sticky like SALT that are in the bill right now?

Anne Gifford Ewing:g So, there are some new things in there that I would say are in the category of “pay-fors.”

Leslie Geller: Yes.

Anne Gifford Ewing:g Because if these, I'll call them tax cuts and jobs extensions or things being made permanent happen, there's a cost to that.

Leslie Geller: Yes.

Anne Gifford Ewing:g Right? And so something else has to give essentially to pay for those things. I should have added there are one or two new things that also cost, but that have been you know, big, big topics in the media and-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... campaigns, notably the no tax on tips and overtime.

Leslie Geller: Yep.

Anne Gifford Ewing:g There's been discussion of lowering tax on Social Security income as well. So if those things come about and the no tax on tips is very much in-

Leslie Geller: Yes.

Anne Gifford Ewing: ... the House version of bill.

Leslie Geller: Yes.

Anne Gifford Ewing:g So if some or all of those things come about in addition to the extensions of tax cuts and jobs, that comes with a pretty hefty price tag.

Leslie Geller: Yep.

Anne Gifford Ewing:g So how to pay for those things? Well, there are a couple of big new things in that House bill that would step up to “pay for” those, those other things and the short list, and this is where I'd say we're seeing more controversy.

Leslie Geller: Yes.

Anne Gifford Ewing:g Right? And, and media coverage, understandably. So that short list are cuts and changes to reimbursements in Medicaid-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g ... nationally as well as some phase-outs of clean energy credits.

Leslie Geller: From the Inflation Reduction Act?

Anne Gifford Ewing:g Yeah.

Leslie Geller: That was one of Biden's key pieces of legislation.

Anne Gifford Ewing:g Yes. And then perhaps the dark horse that some of us didn't see coming until more recently is this proposed increase on income tax for certain endowments and private foundations, namely universities which we're seeing a lot in the news and then some other private foundations. Those three things would appear to be the big money raisers or pay-fors in the House version of the bill. And it's going to be interesting to see, depending on what the Senate does, they may need to raise even more money. And there are some other proposals-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... out there that did not make it into the House bill, but that-

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... may kind of rear their heads again very soon.

Leslie Geller: And I think we're going to see a real standoff between the more fiscally conservative senators, Rand Paul, Ron Johnson-

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: ... and maybe Josh, throw Josh Hawley in there, who are maybe less inclined to be persuaded to go along with voting for this bill because they are so concerned with the cost where the deficit is. And, you know, this being done in conjunction with the debt ceiling-

Anne Gifford Ewing:g Yes.

Leslie Geller: Right? ... also kind of forces that discussion or makes it rise to the top.

Anne Gifford Ewing:g Exactly right. So when we think about what would the timing be of the Senate needing to agree on a version of this bill and then sending it to the president's desk for signature, if that all happens in the one big beautiful bill package, it really looks like the Senate is shooting to have this done before July 4th.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g For a couple of reasons. I think the biggest, as you just mentioned, is the debt ceiling. It's hard to know the exact day that we hit the debt ceiling, so to speak, but, uh, because it's a bit of a moving target. But, it's probably going to happen this summer later in July, maybe August. You know, so before that July 4th recess is really when we would need to know that the Senate has passed a version of the bill. And some of the things that the House did not include in its version, but that we might see come into the Senate version again for these extra pay-fors, and President Trump has indicated that he could be supportive of one or both of these things are, one, an increased income tax rate on high earners and …

Leslie Geller: So that 39 point whatever percent?

Anne Gifford Ewing:g Yeah, that might come back. Right now we're stuck at 37.

Leslie Geller: Yep.

Anne Gifford Ewing:g But the 39 point whatever may come back and there have been different thresholds that have been discussed. Earlier it was those earning more than 1 million per year, there was 500,000 was batted (laughs) around at one point. So that remains to be seen, but that seems to be very much still on the table as an additional revenue source.

Leslie Geller: Yep.

Anne Gifford Ewing:g As well as the carried interest, tax provision, which could be its own webinar.

Leslie Geller: Every time.

Anne Gifford Ewing:g Yes.

Leslie Geller: This happens.

Anne Gifford Ewing:g It comes up every time. So far it has never passed.

Leslie Geller: Yeah.

Anne Gifford Ewing:g But, the president has indicated that he would be open to discussing it and it, it would be a revenue raiser if it, if it was included. So that's going to be interesting and I think we'll know, you and I were talking about you know, shortly after the July 4th holiday, has this been passed in the Senate or not? And if it has not-

Leslie Geller: Things are gonna get a little dicey.

Anne Gifford Ewing: It'll be interesting 'cause we'll really be coming up to the debt ceiling-

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... and we may find ourselves going back to a two bill approach, which we thought we had left behind and maybe we have-

Leslie Geller: Right.

Anne Gifford Ewing:g ... but we'll see.

Leslie Geller: Right. And I don't think anyone has seen a real firm prediction for that debt ceiling timing.

Anne Gifford Ewing:g Right.

Leslie Geller: Um, but I don't think anyone thinks we'll make it to Labor Day.

Anne Gifford Ewing:g Right.

Leslie Geller: Which means that, you know, by the time they leave for the August recess-

Anne Gifford Ewing:g Right.

Leslie Geller: ... we'll have to know procedurally what the plan is here.

Anne Gifford Ewing:g Exactly right.

Leslie Geller: Anne, that's a great summary of what your clients are asking about what you guys are watching in PCS. That very much mirrors what we're talking about on our side of the house, but I'd love to hear from everybody in the audience. You can put your answers in the Q&A, but we also have a poll. What are the main concerns you are hearing about from cl-

Leslie Geller: What are the main concerns you are hearing about from clients? And while you're answering that, Anne, we had our first question come in.

Anne Gifford Ewing:g Oh, great.

Leslie Geller: Is there a discussion on elimination of stepped-up cost basis for common stocks?

Anne Gifford Ewing:g Oh, wonderful question. So this has come up a couple of times over the years, most recently during the Biden administration, when the Build Back Better legislation was proposed, and ultimately did not pass. And I think the questioner is referring to, when, let's say, the owner of a stock dies, the basis in that stock is stepped up to the asset's value as of the date of death. And for an asset that has appreciated greatly during the period that someone owned it, this can be really meaningful for their heirs who maybe receive that stock. If they sell it-

Leslie Geller: Right.

Anne Gifford Ewing:g ... now they're paying much less capital gains tax. It also (laughs) just simplifies life for everyone, accountants and the IRS, et cetera, because sometimes it's hard to know the historic basis of an asset.

Leslie Geller: Right.

Anne Gifford Ewing:g That a decedent may or may not have kept records on.

Leslie Geller: Yep.

Anne Gifford Ewing:g So it really helps to have that death time step up. To answer the question, no, there has not been a recent proposal to eliminate that step up in basis.

Leslie Geller: Yep.

Anne Gifford Ewing:g Which is, I think, a good thing because-

Leslie Geller: (laughs) Good thing.

Anne Gifford Ewing:g ... it …

Leslie Geller: Yeah.

Anne Gifford Ewing:g ... allows us to sort of know where we stand with that process and how to advise clients. But we'll see.

Leslie Geller: Yeah. Alright, back to the poll. So we're watching the numbers come in. And is this surprising to you, Anne, what we're seeing as the biggest concern for your clients right now is state and local tax changes.

Anne Gifford Ewing:g Interesting.

Leslie Geller: And I know that's a big deal for us here in California. But it's interesting that it's also clearly a concern for those in other places as well. Close second, investment tax efficiencies. So tax-efficient portfolios. We're obviously seeing that play out in real time with clients. People becoming more concerned with tax drag, more concerned with creating these tax-efficient portfolios. And then lower estate tax exemptions. And we were talking about this morning, again, this is the one that hasn't really been giving us heartburn, as much as some of the other stuff. And so that's mirroring I think what you guys are seeing as well.

Anne Gifford Ewing:g Yeah, that's interesting.

Leslie Geller: Alright, so instead of, as I said, getting caught in the swirl and worrying about all this uncertainty and what could potentially happen, let's pivot onto more solid ground here. So we're going to talk about now what we can actually do in spite of (laughs) all of this uncertainty. We're going to talk about tax strategy, estate planning, charitable planning, and other things you can do to help guide clients to make smart moves now.

And I know some of you are thinking, I think it's less and less, but is it really necessary to offer all of these services that are not maybe totally directly investment-related to my clients? And research shows, you'll see up on the screen, investors are absolutely looking for this type of guidance. And in many cases, the offerings that advisors are providing are not matching that desire or need. And Anne, I'd love to know, in just a couple of sentences, why is it so important to offer these services right now if you're trying to differentiate yourself as an advisor?

Anne Gifford Ewing:g I think clients always want to feel that personal attention. And the fact is that whether it's a high-net-worth client or not, a client's individual situation absolutely impacts the kinds of planning decisions that they can make, that they should make, the options that they have. And I think we're in a, an era where there are so many potential sources for information, whether it's TikTok or, (laughs), you know, other social media. And it's overwhelming to everyone, much less kind of the average client. So having that input from their advisor as to, for your situation, here are the options you should be thinking about and here's, you know, what might be best for you is really, really powerful.

Leslie Geller: Yeah, I agree. And I also think some of it too is there's a tendency maybe from some advisors to think that, "Oh, the estate planning attorney or the CPA is going to do that." But what we've found is they're really not. Or if they are, there is still plenty of room for the advisor's services and support to be additive around estate planning, around tax efficiency, around just general tax planning.

Anne Gifford Ewing:g I think the practical reality is that clients, on average, talk to their financial advisors far more frequently-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... than to their attorney or their CPA.

Leslie Geller: Yes.

Anne Gifford Ewing:g You know, the estate planning attorney, it might be every few years best-case scenario.

Leslie Geller: Right.

Anne Gifford Ewing:g The accountant at tax time maybe.

Leslie Geller: Right.

Anne Gifford Ewing:g But the advisor is so much better positioned to kind of know, month in and month out, what's going on in that client's life.

Leslie Geller: Yes.

Anne Gifford Ewing:g What has changed?

Leslie Geller: Right. And we always talk about it in terms of your edge as an advisor and your moat is being that client expert, right? Or the expert on that client's family.

All right. And so to help you with these conversations, to help you help your clients with all of this planning, we've created this really great tax guide for investors. It directly supports you in having these conversations with clients. You can download this in your resources right on your screen. Should be really accessible. Again, if you're having technical difficulties or you can't find it, put it in the chat. We'll help you, pull it down.

We've broken this guide into three easy to understand sections. If you've heard me speak, I love that. The three boxes, three buckets, three sections. So we've got tax mitigation opportunities, tax-aware investing, and estate planning. And that's how we're going to structure the rest of our conversation today. So let's start with the easy ones. I love doing this one first because it addresses those things that are table stakes, that we should be talking about with pretty much everybody, but that often get missed because people jump right into the more complex stuff.

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: So Anne, does your team find yourself going back to basics with clients from a planning perspective, particularly right now when we're dealing with some of this uncertainty? Or maybe not as much uncertainty as we, as kind of it appears to be on the surface. And where are the areas of easy capture opportunities that you're looking at right now from a planning perspective?

Anne Gifford Ewing:g Sure. The answer is yes. We always try to remember to go back to basics with our clients. And the basics we're about to talk about apply to most high-net-worth clients as well as clients who may not be high-net-worth. Really a very broad swath. And I do think, at least among the clients that I talk to most regularly (laughs), there's a little bit of, they've been hearing about this sunset and changing estate tax laws for years now.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing:g So most of them are aware of it. We've tried to talk with everyone. There might be a little bit of fatigue thinking about it, possibly. And in the meantime, kind of in the background, there have been some adjustments or some updates to some of these basic qualified plan rules and so forth.

So it is a good time, sort of in this calm before the storm, while we don't yet have the new final tax bill as we were talking about a minute ago-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... to revisit some of these nuts and bolts of anyone's investment life and, and financial plan, and make sure that they're all kind of dialed in and up to date.

And I think we were going to start with maximizing retirement contributions. You know, bread and butter to this audience-

Leslie Geller: (laughs).

Anne Gifford Ewing:g ... I'm sure. And it sounds obvious, but, not all clients may be aware that some of the contribution limits have adjusted over the last few years, both for inflation adjustments. There are some tweaks to the catch-up contribution, amounts, as well as this super catch-up (laughs) contribution option, for those over age 60. It’s a narrow age band, but it's significant-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... for those who qualify for it. So making sure that you’re automated for your clients to reflect these current rules, I think is important.

Also, the SECURE Act 2.0. That legislation that impacts retirement accounts is finally finalized and clarified. You know, we had a couple of cycles for the last few years-

Leslie Geller: Right.

Anne Gifford Ewing:g ... where there were some questions and some tentative rulings and so forth. And pretty much now the rules are clear so we know what it's going to look like for an inherited retirement account, if the beneficiaries are children versus a surviving spouse versus a trust or a charity. And with that certainty, I think it's a really good time, and we're talking with many of our clients about this, to revisit those retirement account beneficiaries, make sure that they make sense under the current rules, and that the client understands what the outcome would be. Many clients, for example, don't yet realize that there's that 10-year window-

Leslie Geller: Yes.

Anne Gifford Ewing:g ... for a non-spouse, um, beneficiary. Or they've named their trust, but haven't revisited the trust with their estate planning attorney to make sure that it is updated to reflect the rules of SECURE 2.0.

Leslie Geller: Yes. And we're also seeing, I think too, some of those back-to-basics retirement strategies pop up in light of some of the market volatility that we've seen.

Anne Gifford Ewing:g Mm-hmm.

Leslie Geller: Some opportunities, that lemonade out of lemon situation.

Anne Gifford Ewing:g Absolutely. So, you know, there've been a lot of conversations I'm seeing around Roth conversion.

Leslie Geller: Yes.

Anne Gifford Ewing:g You know, is this a good time to do it, given some of the volatility, given that the rules around conversion have not changed? So the opportunities are still there.

Leslie Geller: Right.

Anne Gifford Ewing:g And hey, if income tax rates for certain groups of clients do go up, this could arguably be a very good time to do that conversion-

Leslie Geller: Yeah.

Anne Gifford Ewing:g And, and pay that income tax before it's potentially increased.

Leslie Geller: And what we're seeing too, as far as retirement asset trends in the space, and I think you guys are probably seeing this as well, is you're seeing a lot of members of the boomer generation, that have really big retirement accounts.

Anne Gifford Ewing:g Yeah.

Leslie Geller: And they're not going to use all of them (laughs) to live on during the rest of their lives-

Anne Gifford Ewing: Yes.

Leslie Geller: ... because they have other assets as well. And so those retirement assets are likely to be passed down.

Anne Gifford Ewing: Right.

Leslie Geller: And retirement assets are not super tax efficient (laughs) to pass down.

Anne Gifford Ewing: Yeah.

Leslie Geller: And so thinking about the ways, both during life and at death, to make the passing down of those retirement assets or the drawing down of those retirement assets a little bit more tax efficient. I think I've seen a real shift in the types of clients that we're having conversations with, not just from your affluent, but all the way up to the ultra-high net worth folks who have these-

Anne Gifford Ewing: I agree.

Leslie Geller: ... really, really chunky retirement accounts.

Anne Gifford Ewing: Yeah. A lot of discussions around, should we shift and leave more or all of the retirement to charity? Or you know, gosh, the kids are no longer going to get the lifetime stretch out that they used to have.

Leslie Geller: Yes.

Anne Gifford Ewing: Should we rethink what's going to spouse versus what the trust leaves to kids? So it's, it's interesting to see how that's shaking out.

Leslie Geller: And even if you don't end up doing anything, it's a great time to just revisit and make sure that what the plan you have in place, both from a beneficiary perspective, right, and general plan perspective, that it still makes sense in light of the changing laws. And you referenced giving, using retirement accounts to make charitable gifts.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: You can do that to some degree during life.

Anne Gifford Ewing: Yes.

Leslie Geller: And at death, right?

Anne Gifford Ewing: Yes. So I think you're talking about a, a qualified charitable distribution.

Leslie Geller: Yes.

Anne Gifford Ewing: Most advisors are probably familiar with this, but I find sometimes clients are not. So it's always a good basic to remind them of, once they hit a certain age, if assuming it's a traditional retirement account and not a Roth where they're having to take RMDs, they become eligible to give up to, it's now indexed to inflation, um, used to be $100,000 per year. Now it's a little higher.

Leslie Geller: Yeah, a little bit more.

Anne Gifford Ewing: Yep. Outright to a qualified charity, every year if they want to, up to that maximum amount, instead of taking their RMD. They don't get a charitable deduction the way they would if they just wrote a personal check to a charity, but they're not taking the RMD and paying ordinary income tax on it. So depends on the client, but almost always it comes out in the wash-

Leslie Geller: Yeah.

Anne Gifford Ewing: ... as being more tax efficient if they want to be making those charitable gifts.

Leslie Geller: Yep. That's a great one to remember. Before we jump into the second section, a reminder, please send us your questions. I had a couple more pop up. Back to policy, Anne. Sorry, we're gonna take a little-

Anne Gifford Ewing: Sure.

Leslie Geller: ... detour, go back to policy for a second before we go to tax aware investing. I know you referenced this when we were talking about what was in or not in the House version of the legislation, but any discussion of removing or at least increasing the Social Security income tax exemption amount?

Anne Gifford Ewing: Ah. So this is another one that's been talked about a lot, you know, campaign promises and in the media, and so forth. The House version of the bill does not explicitly say no tax on Social Security income. It was discussed. What it does include is kind of a temporary raised deduction amount for those over age 65 that sort of indirectly could be argued to be kind of a temporary-

Leslie Geller: Mm-hmm. Yes.

Anne Gifford Ewing: ... tax waiver if you will on some of that income. So that sort of feels like a compromise of sorts to me. Whether it comes into the Senate version is going to be interesting to see because obviously that would need to be paid for, right?

Leslie Geller: And it's expensive.

Anne Gifford Ewing: It's expensive. Think about how many people in this country, given our-

Leslie Geller: Yes.

Anne Gifford Ewing: ... current demographics-

Leslie Geller: Yep.

Anne Gifford Ewing: ... are over age 65.

Leslie Geller: Yep.

Anne Gifford Ewing: Yeah.

Leslie Geller: Yep. And then one more question before we move on. These are great questions coming in, so, keep 'em coming! Is it recommended to do a QCD [qualified charitable distribution, or a direct transfer of funds from an IRA to a charity] if your RMD has already been met? So if your QCD is not going to offset RMDs either because you haven't hit the RMD age yet, right? 'Cause QCDs start at 70 and a half. RMD, what is it? Is it 73?

Anne Gifford Ewing: It depends on your birthdate.

Leslie Geller: Depends on your birthdate. Right.

Anne Gifford Ewing: Especially between 70 and 73-

Leslie Geller: Yeah.

Anne Gifford Ewing: ... depending on who you are.

Leslie Geller: Depends on your birthdate. But is it, does it still make sense to do a QCD if it's not offsetting your RMD?

Anne Gifford Ewing: You have to be required to take an RMD in order to be eligible to do a QCD. So you, you're not gonna be doing a QCD unless you're required to take an RMD.

Leslie Geller: Right.

Anne Gifford Ewing: Does that make sense?

Leslie Geller: Yes.

Anne Gifford Ewing: So depending on ... You know, so you have to be in that category of people.

Leslie Geller: Right.

Anne Gifford Ewing: And then again, depending on your situation, I find more often than not, certainly for high income tax bracket folks, it is more tax efficient to do a QCD rather than taking the full RMD, paying all the ordinary income tax on it and then making a personal charitable gift that-

Leslie Geller: Yes.

Anne Gifford Ewing: ... elicits a deduction. That is not tax advice to be clear.

Leslie Geller: (Laughs)

Anne Gifford Ewing: It depends on the individual.

Leslie Geller: Yes.

Anne Gifford Ewing: And what we're trying to do here, I'm sure it's clear, but just to sort of name it, we're not trying to give tax advice-

Leslie Geller: (Laughs)

Anne Gifford Ewing: ... nor are you to your clients. This is really more issue spotting-

Leslie Geller: Yes.

Anne Gifford Ewing: ... to be helpful to them and maybe then encouraging them to call the attorney or the accountant to get a final sign off-

Leslie Geller: Yes.

Anne Gifford Ewing: ... on some of these decisions.

Leslie Geller: Yeah.

Anne Gifford Ewing: But often the attorney or the accountant is not in a position to proactively suggest whatever it is to the client.

Leslie Geller: Right.

Anne Gifford Ewing: So that's really the role we're trying to help you all with.

Leslie Geller: Yeah. Yeah. And so that question, QCD and RMDs, it does depend on your personal tax situation. A lot of this retirement stuff needs to be modeled out and so yes, this is a great call for the issue spotting.

All right. So moving into this second bucket of tax aware investing. So this is an area, I called this out earlier, where I think we're seeing a lot more interest. It's always obviously been of interest to those of us who are in the weeds all the time, but I think clients are paying attention to this more.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: The tax efficiency of their portfolios.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: What vehicles are being chosen, asset location, re-allocations, all of the tax loss harvesting. It's become more of a trend in the industry and I think clients are thinking about it more. So what are you doing as far as planning for tax efficiency when it comes to looking at a client's portfolio? And I know in PCS you have investment specialists that really this is their specialty.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: But what are the things that you as a planner are looking out for helping talk to clients about?

Anne Gifford Ewing: Well, I think there's always that starting point of does the client understand the different buckets that they have? Whether it's a retirement account, a taxable account, a 529 college savings account. Those are obviously all different purposes with different time horizons and different tax treatment.

So really starting with making sure that the right investment vehicles are in the right accounts, not just, I really like growth investing-

Leslie Geller: (Laughs)

Anne Gifford Ewing: ... so I'm doing that across the board for those kind of DIYers out there. So sort of starting with that and understanding, making sure the client understands what they have. And then I think going down a level of detail beyond that, and here's where I think an advisor can be really impactful, understanding what that particular client's intentions for those accounts-

Leslie Geller: Yes.

Anne Gifford Ewing: ... are likely to be. So for example, the comment you made a few minutes ago, a baby boomer with lots of assets who's never going to need to rely on their retirement account for retirement income. That retirement account might be invested differently than another person's still a retirement account, but they know that that's maybe their main source of income in retirement and they anticipate spending it down for their lifetime.

You know, that's a very different asset allocation probably. So really kind of getting into those personal forecasts, you know, looking, looking at-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... at what is expected.

Leslie Geller: And not treating all accounts the same-

Anne Gifford Ewing: Right.

Leslie Geller: ... from an investment perspective, right? Like qualified accounts should have different vehicles-

Anne Gifford Ewing: Right.

Leslie Geller: ... than non-qualified accounts because they have different tax treatment. And it's actually great because then you can spread out your different types of investments, different types of vehicles based on which is most tax efficient to have where, and then you add in some trust accounts and you have even more optionality. But looking at your portfolio holistically-

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: ... as opposed to in these silos as far as you know, retirement gets the same treatment as non-qualified from an investment perspective.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: I think really looking at the specific tax treatment of the account, focusing on asset location, focusing on vehicle choice. Those are the things. It's, again, it seems a little basic, but you'd be surprised-

Anne Gifford Ewing: Yeah.

Leslie Geller: ... how many people are not having these conversations.

Anne Gifford Ewing: I'd say some other themes we see over and over again are, two things come to mind. One, a client is planning a move to a different state that maybe has different tax treatment. And so that's going to impact the discussion around asset allocation potentially, and their state income tax treatment and the timing of realizing some income-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... whether it's Roth conversion, RMDs, et cetera. Another thing that comes up again and again is clients are not wanting to necessarily realize a lot of gain all at once, but if they've identified with their advisor a need or an opportunity to, you know, re-stack a little bit on the asset allocation, maybe it's something as simple as changing how you're reinvesting dividends.

Leslie Geller: Right.

Anne Gifford Ewing: You know, that's often a nice nuance to start with before making any bigger changes.

Leslie Geller: So moving from, you know, capital gains or dividends from mutual funds instead of automatically reinvesting them, moving them into maybe more tax efficient vehicles.

Anne Gifford Ewing: In a taxable-

Leslie Geller: Yeah.

Anne Gifford Ewing: Account, you might see that discussion. Yeah.

Leslie Geller: Yep. Yep. And I am going to move us along because we were getting some great questions here.

Anne Gifford Ewing: Great.

Leslie Geller: Oh, quickly before we leave this, because I know we'll get a question about this, tax loss harvesting. That's part of the tax efficiency conversation.

Anne Gifford Ewing: Absolutely.

Leslie Geller: Good time right now with volatility to bring this up. But really important reminder that, again, this is one of those things that is very personal-

Anne Gifford Ewing: Yes.

Leslie Geller: ... to a client, right? Are you seeing people bring this up or talk about this more than-

Anne Gifford Ewing: In-

Leslie Geller: ... normal?

Anne Gifford Ewing: ... in our high net worth clients, I'd say it's a constant topic and we have a lot of strategies within our private client services to address our approach to tax loss harvesting. But I think a, a more general comment would be, in times of market volatility, it can be wise, I think, to remind clients of the power of tax loss harvesting.

And hopefully you're not doing it only when the market is volatile. It's a, you know, something you're always paying attention to and you have a long-term strategy for it, but I think clients can maybe grab onto the impact of it more easily in a volatile market.

Leslie Geller: Yep. That makes sense. Alright, before we move into the third bucket, I have a couple of questions. I wanted to clarify one thing, Anne, because we're getting some comments on this. The QCD issue. So do you have to take ... Is it still worth it to take QCDs if you're not required to take an RMD? I think what we were trying to make clear there was that to be able to offset a QCD against an RMD, you actually had to have an RMD requirement.

Anne Gifford Ewing: Yes.

Leslie Geller: You don't have to be required to take an RMD to make a QCD distribution. They're different ages, right? So the QCD, that's one of the funny things about the law that was passed.

Anne Gifford Ewing: Yeah.

Leslie Geller: It's 70 and a half. I think we were trying to clarify that to get the tax benefit of that QCD offset, you actually had to take an RMD.

Anne Gifford Ewing: Right.

Leslie Geller: Right? But you can do a QCD without having to be required to take an RMD. It's usually I think, more tax beneficial to look for other assets to make charitable contributions from if you're not required to take an RMD. The real benefit of a QCD distribution is having that RMD to offset. Just wanted to clarify that we were getting some notes on that. One more question before we move on to that third bucket. This is a good one Anne-

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: ... and this I think nicely transitions us to the next one.

Anne Gifford Ewing: Great.

Leslie Geller: What is the best way for a client to move a vacation home down to the next generation? And this is for an ultra-high-

Anne Gifford Ewing: Oh, boy.

Leslie Geller: ... net worth family.

Anne Gifford Ewing: Okay, well this could be a whole other hour long webinar-

Leslie Geller: (Laughs) Good one.

Anne Gifford Ewing: ... (laughs)

Leslie Geller: This is a fun one.

Anne Gifford Ewing: ... but briefly there are a lot of ways to do it. I don't think there's any one best way. It's going to depend on a number of things. The basis and the embedded gain in that property, where it's located and what the property tax profile and rules around-

Leslie Geller: Yeah.

Anne Gifford Ewing: ... that property are. That's a big topic in California, for example. Um-

Leslie Geller: Separate from income tax.

Anne Gifford Ewing: Separate. Yeah.

Leslie Geller: Separate from gift and estate tax. The actual property tax implications.

Anne Gifford Ewing: Yep. Yep.

Leslie Geller: Right.

Anne Gifford Ewing: So that's something to be considered. Whether there's a desire to rent that property part-time. So lots of factors to take into the mix. Maybe I'll just name in the interest-

Leslie Geller: Yes, give us a few-

Anne Gifford Ewing: ... of time a couple of-

Leslie Geller: ... of those strategies.

Anne Gifford Ewing: ... a couple strategies that people often do. You can sell, a vacation house to a multi-generational trust that benefits younger generations, and take a note back and then perhaps the donor generation pays rent to be able to still use that vacation house and that is helping to get liquidity into that trust.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... that now owns the house to pay the ongoing-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... property related expenses. That's sometimes an interesting thing to do, for example, if the client has already used all their gift exemption-

Leslie Geller: Yes.

Anne Gifford Ewing: ... and they don't want to pay gift tax. There are qualified personal residence trusts that people sometimes like to use for vacation homes. Those are really just a gift trust of a home that compresses the gift value a little bit by allowing you to take a discount. And we don't have time to go into-

Leslie Geller: (Laughs)

Anne Gifford Ewing: ... how that works, but-

Leslie Geller: But we've seen an uptick a little bit in the use of making-

Anne Gifford Ewing: .

Leslie Geller: ... a couple more pop up because they-

Anne Gifford Ewing: Yeah.

Leslie Geller: ... work a little bit better when interest rates are a little higher.

Anne Gifford Ewing: A little higher. Yep. Yep.

Leslie Geller: And so I've actually seen them kind of ... For a while we weren't hearing about them at all because there were-

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: ... far better ways to transfer them considering the low interest rates. But once the interest rates started to pop up a little bit, you started like to hear-

Anne Gifford Ewing: I-

Leslie Geller: ... about them a little bit more.

Anne Gifford Ewing: I would add to that a third thing. Grantor trusts allow assets of equal value to be substituted in and out. And a lot of high net worth clients already have grantor trusts or set up new gift trusts to be grantor trusts. This becomes really relevant I would say, especially when we have more volatile markets-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... including real estate markets potentially and interest rates. It's a great time for that population of clients to look at all their assets-

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... the current values, the basis and kind of ask themselves, "Maybe I don't need to do a gift or a sale. Maybe there's an opportunity to substitute an asset into an existing trust and do some basis planning that way." And that can be very powerful.

Leslie Geller: And just a reminder there, because we did that type of planning all the time when I was in private practice and it's often something that gets overlooked.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: When you make a gift to a trust-

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: ... you are giving away the ability to get that step up in income tax-

Anne Gifford Ewing: Right.

Leslie Geller: ... basis on death.

Anne Gifford Ewing: Right.

Leslie Geller: And this swapping of assets ability that a grantor trust gives you, it allows you to do some planning on the go. We used to (laughs) call it it-

Anne Gifford Ewing: Correct, correct.

Leslie Geller: ... so that you can manage which assets end up in the trust versus in the grantor's personal estate to maximize the opportunity for getting that step up in basis.

Anne Gifford Ewing: That's right. And sometimes there's a decision to wait until the first spouse's death to get that initial step up and then revisit transferring that vacation house.

Leslie Geller: Yeah.

Anne Gifford Ewing: Um, it's, it's very interesting. Great question.

Leslie Geller: I know. It's that intersection of the income tax and estate gift and-

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: ... estate tax planning that gets like a big puzzle. So that moves us really nicely and into our third bucket. And again, please feel these questions have been so fantastic. Please keep sending them in. We love answering them. Let's move on. This final bucket, estate planning.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: You, we already started talking about it. This is an area that you and I know really, really well. We could talk about that for hours. And there's not a whole lot of uncertainty around this topic right now as far as the exemption amount, at least at this moment.

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: What are you talking about with your ultra-high net worth clients right now? Is anything different than it was this time last year? What are you seeing people really interested in? Are the markets influencing the strategies that are popping up?

Anne Gifford Ewing: Well, let me answer this in two pieces. One, just really briefly kind of a revisiting of basics even with high net worth clients. And then two, some strategies that are more specific just to high net worth clients. So really quickly, I'm sure most of the advisors on the call are very familiar with kind of some planning basic opportunities, but I'm consistently surprised-

Leslie Geller: (Laughs)

Anne Gifford Ewing: ... by how many clients don't remember them or never knew about them. So I'm referring to things like the annual gift amount. I still talk to clients all the time who say, "Oh, it's $10,000, right?"

 

Leslie Geller: (Laughs)

Anne Gifford Ewing: And they're shocked to learn it's $19,000. You know, it, we had some inflation the last few years.

Leslie Geller: Yes.

Anne Gifford Ewing: I don't know if you heard, Leslie.

Leslie Geller: Yeah, I did.

Anne Gifford Ewing: (laughs) Yeah, you did. Yeah. So that, that number has really gone up significantly. They don't all realize that. So making sure that they're kind of up to date on their annual gifting opportunities, whether it's outright or into 529s, et cetera.

Leslie Geller: And that 19,000, that's per person...

Anne Gifford Ewing: Yeah.

Leslie Geller: ... per year.

Anne Gifford Ewing: So it adds up.

Leslie Geller: That doesn't eat into your lifetime exemption.

Anne Gifford Ewing: Correct.

Leslie Geller: So if you're a grandparent with three or four kids and a whole bunch of grandkids and you're doing that type of annual exclusion gifting every year, that's a very powerful way to both transfer money to the next generation and lower your taxable estate.

Anne Gifford Ewing: Exactly right. Clients often forget as well that they can pay tuition and health care expenses ...

Leslie Geller: Total home.

Anne Gifford Ewing: ... directly.

Leslie Geller: Yep.

Anne Gifford Ewing: So that too can be very powerful, depending, again, getting back to our theme, on the client's personal situation. But we often have debates with our high net worth clients around, "Gosh, I want to pay for the education of my grandchildren. Should I pay the tuition directly or should I be maxing the 529 accounts with annual gifts, or both?" You know, "What's the best way to be doing this?"

Leslie Geller: Right. Right.

Anne Gifford Ewing: So that, that can be very interesting.

Leslie Geller: And one other reminder here, because I always like to remind people about this, there's this common misconception that 529s can only be funded with the annual exclusion ...

Anne Gifford Ewing: .

Leslie Geller: ... up to the annual exclusion amount. Is that true or not?

Anne Gifford Ewing: It's not true. Number one, you have the option of super funding a 529 with up to five years of ...

Leslie Geller: Of your-

Anne Gifford Ewing: ... annual gifts.

Leslie Geller: Yep.

Anne Gifford Ewing: But number two, there's nothing stopping you from making a larger gift into a 529, you just might wind up using some lifetime exemption, but that's your choice.

Leslie Geller: Of which there is plenty right now.

Anne Gifford Ewing: Of which there is plenty for most of us. Yes. So yeah, you can ... Now there are ... Sometimes (laughs) people worry about overfunding a 529. "What if my grandchild doesn't go to college? What if it ... You know, that account grows to be much bigger than anticipated?" So that's something to be paying attention to before you just ...

 

Leslie Geller: Yes.

Anne Gifford Ewing: ... put huge gifts into it.

Leslie Geller: Yeah. And I think we're seeing more of conversation. And it is, it is 5/29 today.

Anne Gifford Ewing: It is.

Leslie Geller: It's May 29th.

Anne Gifford Ewing: Let's not forget.

Leslie Geller: (laughs) It's 5/29 today.

Anne Gifford Ewing: I love that.

Leslie Geller: It's a good time to be spending a couple minutes on this. But I think because of ... Because 529s provide people both a way to transfer money to the next generation, right?

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: And also provide that tax-deferred, potentially tax-free growth, depending how you're using those funds, it's killing a couple birds with one stone. It's also tremendously simple ...

Anne Gifford Ewing: Yes.

Leslie Geller: ... to set up. And with income tax rates looking like they're not going down anytime soon, that tax-deferred growth is really looking ...

Anne Gifford Ewing: Really -

Leslie Geller: ... pretty great at the moment.

Anne Gifford Ewing: Yes. Yes.

Leslie Geller: And so we're seeing a lot of interest and a lot more willingness to think creatively about how much to put into those 529s. More than we used to, I think.

Anne Gifford Ewing: I think that's right. And we are also getting a lot of questions around, "Well, I've got some excess 529 funds that, you know, again, maybe I overfunded," which is a good problem to have, but clients are interested in knowing what are all their options with these 529 accounts.

Leslie Geller: Yeah.

Anne Gifford Ewing: And, our advisor audience probably knows, but I find clients are often confused about these options and it's never a bad idea to revisit with the client.

Leslie Geller: Yes.

Anne Gifford Ewing: Options to change the beneficiary of an existing 529, the new option under SECURE 2.0 to potentially roll over a certain portion of a 529 into a Roth IRA for the beneficiary ...

Leslie Geller: Yep.

Anne Gifford Ewing: ... subject to some guidelines and constraints.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: When in doubt you can always take the money out ...

Leslie Geller: You can.

Anne Gifford Ewing: ... and pay the tax on it, um, to your point. So-

Leslie Geller: And if it's been sitting in there for a couple of decades, right, the-

Anne Gifford Ewing: Yeah.

Leslie Geller: May not be something that you shouldn't consider.

Anne Gifford Ewing: So we're looking at all of that with our clients.

Leslie Geller: And one more clarifying question that just came in. You mentioned this quickly, but maybe spend a minute or two on this. Are you still able to front load a 529 for five years in a single calendar year? So that five-year front loading of annual exclusion.

Anne Gifford Ewing: I think so.

Leslie Geller: Yes.

Anne Gifford Ewing: Unless there's something I missed.

Leslie Geller: (laughs) No. Uh, so you ...

Anne Gifford Ewing: Yes.

Leslie Geller: ... could basically fund five years’ worth of annual exclusion gifts into a 529.

Anne Gifford Ewing: In, in one lump if you-

Leslie Geller: In one lump sum. There are some, if there's a death, there could be a clawback, and we won't get into that, but yes, you can still five-year front load.

Anne Gifford Ewing: Yes.

Leslie Geller: Absolutely. Back to, one more clarification — this vacation home sale with family members. Somebody had a clarifying question.

Anne Gifford Ewing: Sure.

Leslie Geller: Um, are there ... Are IRS determined rental amounts and interest rate charged to family members?

Anne Gifford Ewing: Ooh.

Leslie Geller: This is a good question.

Anne Gifford Ewing: (laughs) Very briefly, and again, this is not legal or tax advice. But in terms of what we usually see happening with clients, if there's a promissory note and a loan happening to facilitate private sale to a trust, um, at the-

Leslie Geller: This is not just for vacation homes, this could be-

Anne Gifford Ewing: This could be any asset. You know, an apartment building that produces income ...

Leslie Geller: Right.

Anne Gifford Ewing: ... As an ex- another example that's common. At minimum, the interest rate generally needs to be the applicable federal rate in that month, the AFR as it's called, to qualify as a bona fide loan and not a gift.

Leslie Geller: Yep.

Anne Gifford Ewing: Sometimes you see people electing to use a higher rate. There's a lot of tax advice that needs to come in around that. And what was the other part of the question? Interest rate …

Leslie Geller: Interest rate and the rental amounts.

Anne Gifford Ewing: Oh, the rental amounts. You know, there's a lot on that topic. Broadly, it needs to be a market rate.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: Now, what you decide a market rate is ...

Leslie Geller: .

Anne Gifford Ewing: ... you know, there are a lot of ways you could approach that, whether it's a lease agreement or a by night kind of thing.

Leslie Geller: Yeah.

Anne Gifford Ewing: But ...

Leslie Geller: Yeah.

Anne Gifford Ewing: ... that's the concept, a market rate.

Leslie Geller: And before we leave this estate planning topic again, these are great questions. Keep 'em coming. We have about 10 minutes left before we leave this estate planning topic. So those were some of the basic strategies, wealth transfer strategies that you're talking about with high net worth clients. What are some of the strategies that you're focusing on with those ultra-high net worth clients ...

Anne Gifford Ewing: Sure.

Leslie Geller: ... who either really want to use up all of their exemption or most of it, or have already used up most of their exemption?

Anne Gifford Ewing: Mm-hmm.

Leslie Geller: What are you talking about with them right now?

Anne Gifford Ewing: I'd mention two things. Number one, we have a lot of clients, high net worth clients, using grantor retained annuity trusts, or GRATs for short. Particularly with securities, growth securities that have experienced a lot of volatility, whether they're tech stocks, Magnificent 7 stocks [seven high-performing technology stocks, including Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla.], other things. It's a period, especially if the client thinks that stock is at a depressed value, could be very appealing to put it into a GRAT. If you've already used your exemption, um, a GRAT is a way to transfer some wealth if there's a certain amount of appreciation during its term on the asset, potentially without using much or any lifetime exemption. So those can be quite powerful.

I'd also add, you know, we're in an interesting moment where our high net worth clients, with our help and advisors out there, they've been thinking for the last couple of years a lot about ...

Leslie Geller: Yes.

Anne Gifford Ewing: ... "Should I set up new gift trusts? Should I gift this amount versus that amount?" For most of them, they've been thinking about it even if they have not pulled the trigger. And so for some of them I'm seeing there's kind of this moment of calm and kind of, you know, "This is a good time to do it if I think some of my assets have experienced, you know, a bit of volatility, maybe a depressed valuation." Even if this higher exemption amount that's in the House bill is signed into law, they've been thinking about it long enough that they've sort of gotten comfortable with the long-term benefits of making these big gifts. In other words, the growth outside of ...

Leslie Geller: Yes.

Anne Gifford Ewing: ... their taxable estate. So even if that exemption amount is around for a while longer ...

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... I think they've, they've digested that, for larger estates, it's usually still a good idea to do the planning that they've been thinking about.

Leslie Geller: Yes, sooner rather than later.

Anne Gifford Ewing: A lot of them are ... Yeah. A lot of them are still going forward with it, which is great.

Leslie Geller: That's great. And one last question, and then we'll move on to our last ... Our last closing thoughts. Have you heard of any proposed legislation to eliminate the 10% penalty for overfunded 529s? So for taking money out and using it for education? I haven't heard of anything ...

Anne Gifford Ewing: I have not.

Leslie Geller: ... eliminating that 10%. That would be great.

Anne Gifford Ewing: Yeah, it would be great.

Leslie Geller: But I don't think that's, I don't think that's on the table.

Anne Gifford Ewing: We'll see what the Senate does in the tax bill, but ...

Leslie Geller: Yeah, maybe.

Anne Gifford Ewing: ... I have not heard that discussion so far.

Leslie Geller: Yeah. So, quickly ...

Anne Gifford Ewing: Yes.

Leslie Geller: ... let's hit on this because I know there was a concern in that poll. State and local taxes.

Anne Gifford Ewing: Yes, yes.

Leslie Geller: So from an income tax estate planning perspective, what are you guys doing around state tax planning? Because, you know, everybody's living all over the place and all of these states have different not only income tax systems, but transfer tax systems. So we're also planning not just for federal estate and income tax, but also for state estate and income tax.

Anne Gifford Ewing: I think the single biggest thing I would say to an advisor audience, and we are dealing with this every day, is so many clients are moving states often when they've retired, or they're downsizing, whatever it is, and so many clients don't realize how different different states can be on some of these tax rules, or maybe it's a community property versus marital property state. All these different things that clients don't tend to think about. So the single biggest, most important thing I think we can do as advisors is hopefully be aware that they're contemplating a move before they actually move ...

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... and strongly encourage them to do some analysis and get some advice before they move. You know, maybe it's, again, the timing of a Roth conversion. Maybe it's what kind of muni portfolio do we want to have? Maybe it's we've got to make sure that our community property is documented before we move ...

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: ... out of a community state. There are so many different things. Maybe we didn't know that we're moving into a state that has state estate tax.

Leslie Geller: Yes.

Anne Gifford Ewing: I see that all the time in California.

Leslie Geller: Mm-hmm.

Anne Gifford Ewing: Because we don't have it, so people, it's just not in their head as a concept. And they're shocked to learn that Washington or Oregon, for example, has a state estate tax that's very different from the federal system. So really getting out ahead of that move, I think, is the, the most important thing we can do.

Leslie Geller: Yeah. And the other thing too that I'm seeing at least is people who live in high-tax states continue to try to use wealth transfer and some of these ... You know, some of these creative trust planning strategies in no-income tax states to mitigate some of their state income tax bills, and that is an area that gets real complicated ...

Anne Gifford Ewing: Yes.

Leslie Geller: ... really fast and super important to have great local counsel ...

Anne Gifford Ewing: Yes.

Leslie Geller: ... and really good advice as far as how you're structuring those types of, those strategies.

Anne Gifford Ewing: Absolutely.

Leslie Geller: All right. So before we close, I want to just take another minute to reference our guide. It's in the resources. It's a really great conversation starter. Yes, a lot of this stuff gets complex quickly, it gets into the weeds, but this is not something that you have to be solely responsible for. As Anne said, this is about issue spotting. And these conversation guides, it does a great job supporting you in this issue spotting. So Anne, I think we did a really great job today staying away from the swirl, right? The volatility, the uncertainty.

Anne Gifford Ewing: Avoid the swirl.

Leslie Geller: Right? But it's probably worth ending on that topic since that's what's dominating the headlines right now. And for us, the importance of staying disciplined, continuing to plan long term, and not making emotional reactive decisions or trying to predict the future.

Anne Gifford Ewing: Yeah.

Leslie Geller: So Anne, closing thoughts for advisors on how to keep focused and keep clients focused through these turbulent times.

Anne Gifford Ewing: Well, I think just revisiting that long-term plan and the reasons for the decisions that were made, and being able to quantify all the progress that has already been made for your client, can be so powerful and can really encourage them to stay the course when they see that quantified and they understand and are reminded, "Here's why we made these choices. Here's what they've produced so far." And if you stay the course, yes, all these things are going to change, and they'll probably change 10 more times, right? So we, we've got to keep that long-term goal and that long-term plan in mind and how it benefits the client.

Leslie Geller: And there's a perfect job or mandate for a financial advisor.

Anne Gifford Ewing: Absolutely.

Leslie Geller: To be the one who is the keeper of those reasons and understands those financial decisions and helps remind the clients why they made them. All right. So we have some QR codes that will take you directly to some of our related resources. You can find additional wealth planning and tax planning resources on Capital Ideas, which is number one for thought leadership for advisors.

And finally, I want to thank my friend and colleague Anne for your great insights. It's always fun having these conversations with you when so many people can watch them, even though we're doing it all the time.

Anne Gifford Ewing: Thank you for having me.

Leslie Geller: I hope all of you found this as interesting as we did. Thanks again and enjoy the rest of your day.