Displaying items by tag: heirs

(Washington)

One of Biden’s most important campaign promises was that he would not raise taxes on the middle class, or more specifically those earning less than $400,000. Accordingly, it is a surprise to see a new proposal from Democrats that would do exactly that. Biden and the Democrats appear to be going after “stepped up basis” in inheritance taxes as a way to raise tax revenue and fund the infrastructure bill. Right now, when inherited assets get transferred, their basis resets to whatever the market value is at the time of inheritance. In this way, heirs only pay capital gains on the increase in value that occurs while they hold the asset. Biden and his administration wants to change the rules in order to keep the basis in place from when the original buyer purchased the asset. This change would not only affect the wealthy in a big way, but also the middle class, as the basis for many assets would suddenly be very low, meaning large taxes would be due no matter the size of the estate being transferred. A good example might be an inherited condo from a parent that was bought 30 years ago and has appreciated from $100,000 at purchase to $600,000 now. Under the current system, a middle class earner who inherited and decided to immediately sell the condo would pay almost no taxes. However, under the new proposal, almost $100,000 in taxes would be due because basis would be applied to the original purchase price!

FINSUM: This is a big change that advisors need to be watching closely!

Advisors are a pretty conservative lot. So, while many might have heard of the DEMZ fund—the Democratic Large-cap Core Fund—they might not have given it serious thought. To start with, the fund is unlike other “political” funds (such as MAGA) because at its heart is world class fund construction and management. Merely stripping out stocks from an S&P 500 basket, like others do, will diminish returns almost by definition, so DEMZ accounts for this by creating strict parameters for weighting and caps that allow it to remain significantly diversified. And it achieves all this while remaining meaningfully cheaper than other funds in its category.

But the real reason advisors need to pay attention to DEMZ is that the future of their business might depend on it. DEMZ invests in companies that give 75% or more of their political donations to the Democratic party, and it just so happens that a lot of your big clients’ heirs have the same political leanings. Most advisors are aware that there is a high attrition rate when a head of family passes away and wealth is transferred to spouses (usually wives) and children. A big part of this is that the advisor does not seem like they can align with the inheritors’ goals and needs. In this way, DEMZ can help advisors signal to spouses and heirs that they understand their political affiliations and moral positions, and how those are fused with their investment goals. Therefore, even if you are card-carrying Republican, DEMZ is something that needs to be on your radar.

If you don’t take a look and understand DEMZ, do so at your own peril.

n.b. This content was composed and paid-for by Reflection Asset Management and is not FINSUM editorial.

(New York)

Here is a tough fact for anyone to consider: 70% of wealthy families will lose their wealth by the second generation, and 90% will squander it by the third, according to a study by the Williams Group wealth consultancy. That means parents are fighting an uphill battle in trying to educate their children/heirs on how to manage finances. It sounds very simple to say, but education and learning the value of hard work from an early age are the best ways to ensure a successful continuation of wealth. Three top tips for clients are: be open with your family about wealth, its creation, and continuation; educate your family members about wealth creating/growth strategies; and put a lot of care into tax planning to avoid inheritance tax pitfalls.

FINSUM: Many people struggle with how to talk to their children about money, but as is often the case, the most difficult things to do are usually the most important ones.