Current Financial Planning Opportunities


While the Coronavirus pandemic has brought its share of fear and anxiety, it also brings some favorable financial planning opportunities that can be of significant benefit for you and your family. Below are some opportunities to consider.

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Q1 2020 hedge fund letters, conferences and more

1. Harvesting Capital Losses:

An approximate 20% decline in equity markets from the early year high, along with volatility in sectors of fixed income markets have caused security values to decline.  As we periodically rebalance portfolios, in taxable accounts we look to realize capital losses and replace sold positions with similar, but not identical, securities to maintain desired exposures. When we “harvest” capital losses, we take care to not violate the “wash sale rule” which disallows a realized capital loss if the same or substantially identical position is purchased within 30-days before or after the sale triggering the loss. Important to note that the wash sale rule applies even if a position is sold in a personal account but was purchased in the restricted 30-day period in an IRA or other tax-deferred account. As a refresher, the basic capital loss rules are:

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  • In the current year, realized capital losses offset realized capital gains
  • To the extent there are net realized capital losses at the end of any year:
    • Up to $3,000 can be used to offset ordinary income for the current year; and
    • Excess capital losses are carried forward and can be used to offset realized capital gains in future years with no expiration.

Capital loss harvesting is also useful when looking to diversify away from a low-basis concentrated position as a taxpayer can look to match gains generated from the concentrated position with harvested capital losses.

2. Roth IRA Conversions:

Those with significant Traditional (pre-tax) IRA or 401k assets who have experienced noticeable declines should consider converting dollars to a Roth IRA. Roth funds grow income tax-free, qualified withdrawals are tax-free, and there are no mandatory distribution requirements. Traditional/pre-tax retirement plan balances grow tax-deferred, but withdrawals are taxable as ordinary income upon eventual distribution, and they are subject to required minimum distributions (RMDs) starting at age 72. As such, Roth funds can provide long-term benefits for families, as Roth dollars passing to children or other non-spousal heirs will not have income tax consequences upon eventual distribution.

Clients should understand that a Roth conversion involves triggering income taxes on converted funds, and it is strongly recommended that taxes on conversion should be paid from dollars outside of retirement plans. The primary reason this year is a unique opportunity for Roth conversions is because the CARES Act eliminated all RMD’s for 2020. Many individuals will have less taxable income this year because of the RMD suspension or because of a disruption in business, and that allows for more tax-efficient Roth conversions. Income tax rates are also at historical lows for many because of the 2017 Tax Cuts and Jobs Act, so converting dollars to Roth may prove to be an even better decision if tax rates are increased in the future.

3. Charitable Giving:

Taxpayers who use the standard deduction can take an above-the-line deduction for charitable gifts of up to $300 per taxpayer ($600 if married filing joint). They would not be able to deduct charitable gifts under normal circumstances.

For individuals who are very charitably inclined, the CARES Act waives the 60% AGI limit for cash donations made in 2020. This only applies to cash gifts made directly to public charities. This means gifts of appreciated securities have the same AGI limitations, as do gifts of any kind to donor advised funds or private foundations. A small subset of taxpayers may find a greater tax benefit in making a portion of their 2020 charitable gifts via cash.

4. Estate Planning:

  • Annual Exclusion Gifting – the annual limit for annual exclusion gifts remains at $15,000 ($30,000 for a married couple). Making these gifts now (as opposed to near year-end) and investing at lower entry points for the long-term benefit of children/grandchildren and other heirs should be considered.
  • Lifetime Federal Estate/Gift Tax Exemptions – the federal exemption is currently $11.58mm per person ($23.16mm per married couple) and scheduled to increase annually for inflation until year-end 2025. That is when this provision of the 2018 tax act sunsets and the exemption amount is scheduled to revert to $5mm (inflation adjusted) per person. With an election later in the year, there is a possibility that this exemption amount gets rolled back or otherwise adjusted sooner than the year-end 2025 sunset. The IRS has issued a final regulation stating that anyone who uses the exemption while in effect will not be subject to a ‘claw back’ should there be a decrease.  Those facing a potential estate tax should consider using their exemptions now and investing those funds at depressed entry points for the long-term benefit of heirs.
  • Estate Freeze Techniques – such techniques look to essentially “freeze” an asset's value in your estate while passing appreciation to heirs with little to no use of your lifetime gift and estate tax exemption. An environment with very low interest rates and depressed asset values can create the “perfect storm” for two such techniques we often discuss:
    • Intra-family loans - each month, the IRS publishes a set of minimum interest rates (called Applicable Federal Rates). These are the lowest rates one can lend at and not have the transaction be considered a gift/use of one’s lifetime exemption. An intra-family loan allows one to lend cash/assets to family members in exchange for a low interest note. The borrower invests the cash or assets and is able to keep all the appreciation above the note's interest requirement. Interest rates are tiered based on the term of the loan. Annual AFRs for April 2020 per loan term are:
      • Short-term (0-3 years) loan rate is 0.91%
      • Mid-term (3-9 years) loan rate is 0.99%
      • Long-term (9+ years) loan rate is 1.44%
    • Grantor Retained Annuity Trust (GRAT) – GRATs use an interest rate (called the 7520 rate) that is 120% of the above stated mid-term rate, which works out to be 1.2% for April 2020. A GRAT is a trust that is funded for a term of years (2 or more) and owned by the grantor.  During the trust term, the grantor will take back the value of the assets contributed plus the 7520 rate. At the end of the trust term, appreciation in excess of what is taken back by the grantor can pass to heirs with little to no use of one’s lifetime exemption. Our T&E team wrote a whitepaper on GRATs should you want to read more.

Again, the recommendations we have included here will vary in suitability given your specific financial situation. But if these do sound like they would be beneficial, we encourage you to discuss them with your financial advisor.

Article by Craig Fasano, J.D., and Zachary Gering, CFP®