The Delaware-based wealth management firm, located in a state renowned as a trusts jurisdiction, talks to FWR about the recent federal tax changes.
The US private client wealth management sector continues to digest the impact of the sweeping tax changes enacted a few weeks ago. The measures, containing the headline-grabbing cut to corporate tax to 21 per cent from 35 per cent, also involve a doubling of estate tax exemptions and caps to how local and state income tax rates can be deducted from federal income tax, creating uncomfortable situations for higher earners in relatively high-tax states.
Already, this publication has sought to work out if family offices, for example, could be affected if their principals decide to change their tax status, although at the time of writing this appears unlikely in the great majority of cases. Wealth advisors have also examined how estate planning and inter-generational wealth transfer, which are major issues as Baby Boomers retire, will be affected.
This publication recently spoke to Carol Kroch, national director of philanthropic planning at Wilmington Trust.
US tax laws are seldom permanent and therefore subject to change, so wealth and estate planning for the long term should take that into account, Kroch said.
An issue to bear in mind is that in many of the US states, there are estate taxes, so even with the doubling of the federal estate tax exemption, the situation on the ground will vary from state to state, she said.
“There has been a fair amount of concern about how bad this [new tax bill] is for charities,” she said, arguing that examining the details suggests the fallout for charity is less severe than might be supposed,depending on who its donors are, and that some tax incentives have actually increased, not declined," Kroch continued.
Charitable deductions continue in the US federal tax code, she said, but are only useful to taxpayers who can still itemize their deductions .
For those no longer able to take advantage of itemized
deductions, there may be marginal effects on the willingness to
give to charity, Kroch said, arguing that tax is not and has not
been the sole or even main reason people have for giving.
She talked about the doubling of the US federal income tax standard deduction for an individual to $12,000 (up to $24,000 for a married couple). For people living in, say, a relatively high-tax state such as New York, itemized deductions for state and local income and property taxes are capped at $10,000.
Many taxpayers in high tax states will lose the opportunity to itemize deductions as the doubled standard deduction may exceed all of their permitted itemized deductions. For those taxpayers, the benefits of the itemized deduction for charitable giving will be lost. For those with sufficient deductions to exceed the new increased standard deduction, charitable giving will be one of the few deductions available, perhaps even having a positive impact on larger charitable gifts.
For cash gifts to public charities, such gifts used to be capped at 50 per cent of gross adjusted income – that has been lifted to 60 per cent.
One way to deal with the loss of the ability to use the itemized charitable deduction for people over aged over 70 and half - they can distribute directly from their Individual Retirement Account to a qualified public charity.
The amount distributed directly to charity is not treated as income, so the impact is similar to taking a deduction. Another advantage not lost to non-itemizers is the benefit of giving appreciated securities to charity. The donor will not have to pay the capital gains taxes that would have been due on any future sale.
If readers want to contribute reactions as more specific aspects of the tax changes emerge, contact the editor at firstname.lastname@example.org